Unit labour costs describe the cost of labour per unit of performance. In a national economy average unit labour costs are thus the costs of employing a worker relative to his or her economic performance.
Increasing productivity leads to lower unit labour costs, while increasing wages raises them. Unit labour costs and their development are an important indicator of a country’s competitiveness. Low unit labour costs indicate a distinctly competitive economy, which may be due either to high productivity or relatively low wages. Considerable differences on one side are often matched by similarly great differences on the other. This means that, as a rule, countries with high labour costs work very productively while in low-wage countries productivity usually lags behind.
In Germany manufacturing industry in particular is considerably more productive than the foreign competition. However, this advantage does not entirely compensate for the drawback of high labour costs. All things considered, unit labour costs in Germany are on average about 10 per cent higher than the competition’s.