Productivity Lags High Labor Costs in Germany

Unit labor costs in the German manufacturing industry still rank among the upper third of its competitors who on average have a cost advantage of 8 percent.

Although Germany ranks fifth among 27 countries in terms of productivity, this is not high enough to fully compensate its high labor costs. Calculated on the basis of national currencies the development of unit labor costs has been much better than abroad since 2000. The reason is an annual reduction of 3 percent in the period from 2003 to 2006. However, the long-term development has not been more favorable in Germany than in the other 26 countries because strong increases of labor costs and weak productivity gains pushed unit labor costs up by 3.4 percent annually during the first half of the 1990s while foreign competitors’ costs retained almost the same level in national currency over the entire period from 1991 to 2008.