An International Comparison of Industrial Labour Costs

There are still large differences in cost levels between eastern and western Germany. At 27.8 euros per hour, eastern German industry produces 35 per cent more cheaply than its western counterpart (42.9 euros). Since the turn of the millennium, whilst worsening slightly compared with other foreign competitors, German labour costs have improved relative to the Eurozone. However, this development has been by no means continuous. Although Germany succeeded in continuously reducing its cost disadvantage vis-à-vis the rest of the Eurozone in the 2000s, after flattening out for four years its labour cost position deteriorated again and by 2018 had worsened by 5 percentage points. The country’s long-lasting boom has thus not only led to growth in employment, but also to an above-average increase in labour costs. German industry’s network of component suppliers and service providers means that manufacturing also involves other sectors, such as the transport sector. The German Economic Institute (IW) therefore also calculates the labour costs of the manufacturing sector including its intermediate consumption network. Taking this combined effect reduces labour costs in German industry in 2018 by a good 2 euros to 38.8 euros. This is the strongest effect in Europe, showing that German industry’s upstream suppliers have particularly favourable labour costs compared to manufacturing itself. Nevertheless, Germany still ranks sixth and is thus in the top group of this cost ranking as well.