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15. Wages and Compensation Costspdf KILM 15. Wages and compensation costs This chapter presents two distinct and benefits, services and facilities (such as complementary indicators. The first, table 15a, housing, vocational training and welfare shows trends in average monthly wages in the provisions) which are primarily intended to total economy for 126 countries, while the benefit workers. Table 15b presents both the second, table 15b, presents the trends and level and structure of compensations costs, structure of employers’ average compensation with distinction made between total hourly costs for the employment of workers in the direct pay and hourly social insurance manufacturing sector, available for 33 expenditures and labour-related taxes. countries. Assessing the change in labour costs over time can play a central role in wage negotiations These two indicators differ in their nature and in implementing and assessing and primary objectives. Wages are important employment, wages and other social policies. from the workers’ point of view and represent Information on labour cost per unit of labour a measure of the level and trend of their input (that is, per time unit) is particularly purchasing power and an approximation of useful in the analysis of certain industrial their standard of living, while the second problems, as well as in the field of indicator provides an estimate of employers’ international economic cooperation and expenditure toward the employment of its international trade. workforce. The indicators are, nevertheless, complementary in that they reflect the two main facets of existing wage measures; one aiming to measure the income of employees, Introduction the other showing the costs incurred by employers for employing them. Table 15a presents trends in average monthly wages, both in nominal and real terms For most employees, wages – the income (i.e. adjusted for changes in consumer prices), they receive from paid employment – where available. Average wages represent one represent the main part of their total labour- of the most important aspects of labour market related income. Information on workers’ information as wages are a substantial form of wages is a valuable economic indicator for income, accruing to a high proportion of the planners, policy-makers, employers and labour force, namely persons in paid workers themselves. The statistical series in employment (employees). In most developed table 15a show nominal average wages and economies, more than 85 per cent of the real average wages. employed population are paid employees, and the share of paid employees has been From the employers’ standpoint, wages constantly rising in many of the newly are only one component of the cost of industrializing countries (see KILM 3). employing labour, which is usually referred to Information on wage levels is essential to as labour costs (according to the ILO concept), evaluate the living standards and conditions of employment costs or compensation costs. work and life of this group of workers in both Other cost elements include employers’ developed and developing economies. It helps expenditure on social security benefits, to assess how far economic growth and rising provided either as direct payments to the labour productivity (KILM 16) translate into employees or as contributions to funds set up better living standards for ordinary workers for the purpose, as well as the cost of various Wages and compensation costs KILM 15 and to the reduction of working poverty (KILM 17).1 Average hourly compensation cost is a measure intended to represent employers’ There is also a particular need for expenditure on the benefits granted to their information on average wages in planning employees as compensation for an hour of economic and social development, establishing labour. These benefits accrue to employees, income and fiscal policies, fixing social either directly in the form of total gross security contributions and benefits, and in earnings or indirectly in terms of regulating minimum wages and for collective employers’ contributions to compulsory, bargaining. Policy-makers, as well as contractual and private social security employers and trade unions, pay close schemes, pension plans, casualty or life attention to wage trends. At the global level, insurance schemes and benefit plans in respect the ILO’s biennial Global Wage Report of their employees. This latter group of analyses wage trends across different regions benefits is commonly known as “non-wage and discusses the role of wages policies (see benefits” or “non-wage labour costs” when 2 box 15a). In addition to the relevance of wage referring to employers’ expenditure and in data, international standards were long ago table 15b is captured in “social insurance developed, adopted and implemented for the expenditures and labour-related taxes”. concepts, scope and methods of collection, as well as for the compilation and classification Compensation cost is closely related to of wage statistics (see “definitions and labour cost, although it does not entirely sources”). This should, in principle, facilitate correspond to the ILO definition of total international comparisons. labour cost contained in the 1966 ILO resolution concerning statistics of labour cost, The indicator of table 15b is concerned adopted by the 11th International Conference of with the levels, trends and structures of Labour Statisticians (ICLS),3 in that it does not employers’ hourly compensation costs for the include all items of labour costs (see box 15c). employment of workers in the manufacturing In particular, the costs of recruitment, sector. The measure is shown for all employee training, and plant facilities and employees and it includes the total services, such as cafeterias, medical clinics compensation cost levels expressed in absolute and welfare services, are not included. It is figures in US dollars and as an index relative estimated that the labour costs not included in to the costs in the United States (on the basis hourly compensation costs account for around of US = 100). Total compensation is also 1 to 2 per cent of total labour costs for those broken down into “hourly direct pay” with countries for which information is presented. subcategories “pay for time worked” and This measure is also closely related to the “directly paid benefits”, and ”social insurance “compensation of employees” measure used in expenditure and labour-related taxes” with all the system of national accounts,4 which can be variables expressed in US dollars. considered a proxy for total labour costs. 1 This was also the rationale for including average real wages into the ILO’s list of Decent Work Indicators; see Guide to the Millennium Development Goals 3 ILO, Resolution concerning statistics of labour cost, Employment Indicators (Geneva, ILO, 2nd edition, 2013); adopted by the 11th International Conference of Labour http://www.ilo.org/empelm/what/WCMS_208796/lang-- Statisticians, Geneva, 1966; en/index.htm. http://www.ilo.org/global/statistics-and- 2 For the latest report, please refer to ILO: Global databases/standards-and-guidelines/resolutions-adopted- Wage Report 2014/15: Wages and income inequality by-international-conferences-of-labour- (Geneva, 2015); statisticians/WCMS_087500/lang--en/index.htm (see http://www.ilo.org/global/research/global-reports/global- box 15c). wage-report/2014/lang--en/index.htm 4 See System of National Accounts 2008 (New York, Data associated with the ILO Global Wage Report is United Nations, 2009); available in ILOSTAT; http://unstats.un.org/unsd/nationalaccount/docs/SNA200 www.ilo.org/ilostat. 8.pdf. Wages and compensation costs KILM 15 Wages and compensation costs KILM 15 Use of the indicator When used together with other economic variables such as employment, production, and Real wages in an economic activity are a income and consumption, trends in average major indicator of employees’ purchasing real wages are valuable indicators for the power and a proxy for their level of income, analysis of overall macroeconomic trends, as independent of the actual work performed in well as in economic planning and forecasting. that activity. Real wage trends are, therefore, Importantly, they can indicate the extent to useful indicators, both within countries and which economic growth and rising labour across them. Significant differences in the productivity translates into income gains for purchasing power of wages, over time and workers. These, in turn, influence aggregate between countries, reflect the modern world demand, and countries with external surpluses economy, and comparisons of the movement can utilize wage policies to re-balance their of real wages can provide a measure of the economies by strengthening domestic material progress (or regression) of the consumption. working population. Real average wages are therefore an important indicator for monitoring Information on hourly compensation changes in working conditions. And they costs (table 15b), like total labour cost, is should be reviewed in conjunction with trends valuable for many purposes. The level and in working poverty (KILM 17) and the low structure of the cost of employing labour and pay incidence. the way costs change over time can play a central role in every country, not only for Trends in nominal wages can be used to wage negotiations but also for defining, inform adjustments in minimum wages, the implementing and assessing employment, lowest remuneration that employers may wage and other social and fiscal policies that legally
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