An International Comparison of Unit Labour Costs: No Excessive Wage Restraint in Germany

Unit labour costs in German manufacturing are still high. In 2015 average unit labour costs in selected countries were 11 per cent below the German level, while the Eurozone, with costs only 4 per cent lower than in Germany, had a more moderate advantage. Although the German productivity is above average, this is still not enough to compensate for high labour costs. From 1991 to 2015 – largely due to lower productivity growth – Germany’s unit labour cost position deteriorated slightly on a local currency basis relative both to the Eurozone and to the competition as a whole. Unit labour costs increased particularly steeply in the 1990s with the result that Germany introduced the euro to a struggling economy. From 1999 to 2007 German unit labour costs developed considerably more favourably than in other Eurozone countries. Since 2011, however, they have again risen more rapidly than in the Eurozone and than for the foreign competition as a whole, albeit the lower exchange rate for the euro since 2015 has brought German exporters some relief.