development report 2012 - UMAR

112 Development Report 2012
Indicators of Slovenia’s development
Unit labour costs
In 2010, the ratio of labour costs to GDP deteriorated
for the third year in a row. After the strong growth in
2009 (by 5.6%) arising from a substantial decline in
labour productivity due to lower economic activity,
in 2010 real unit labour costs continued to grow
(1.4%) owing to strong growth in private sector
wages under the impact of the increase in minimum
wage. As a result of a rebound in economic growth,
but primarily due to the shrinkage of employment,
labour productivity rose again in 2010, yet less than
the compensation of employees per employee. This
was another significant wage increase during the
crisis. The first, in 2008, was due to wage adjustment
for high past inflation and productivity, particularly
in the private sector, and partly also to the beginning
of the elimination of wage disparities in the public
sector. After declining slightly in 2000–2007, 1 real unit
labour costs therefore started to grow in 2008.
After it deteriorated more than in the economy in
2008–2009, in 2010 the ratio of labour costs to value
added in manufacturing improved somewhat. Being
the most export-oriented sector, manufacturing was hit
hardest by the sharp fall in foreign demand, particularly
in 2009. Manufacturing recorded an above-average fall
in value added, and consequently, an above-average
drop in labour productivity. 2 Growth in real unit labour
costs in manufacturing was therefore much stronger (6%
per year in 2008–2009) than in the economy as a whole
(4.1%), despite weaker growth in the compensation of
employees per employee. However, with a rebound in
foreign demand, in 2010 manufacturing also enjoyed
much higher labour productivity growth than other
sectors of the economy due to a larger increase
in value added and a steeper fall in employment.
Nonetheless, the decline in real unit labour costs
was relatively modest (-0.6%) owing to a concurrent,
more pronounced, increase in the real compensation
per employee (chiefly under the impact of higher
minimum wage). 3
unit labour costs in the EU had already dropped,
after growing less than in Slovenia in 2008–2009,
while real unit labour costs in Slovenia continued
to grow slowly. As was the case in 2008, in 2010,
the deterioration of Slovenia’s competitive edge
resulted from higher growth in the compensation
per employee than in the EU, and in 2009, from a
greater decline in labour productivity as the fall in
economic activity in Slovenia was among the largest
in the EU. In 2008 –2010, Slovenia was ranked second
among EU Member States in terms of loss in cost
competitiveness. 4 Slovenia’s position had already
deteriorated slightly before the crisis, in 2000–2007,
when its cost competitiveness improved less than, on
average, in the EU. In the second half of the 1990s, real
unit labour costs in Slovenia declined at a much faster
pace than in the EU. 5
According to the quarterly data, the ratio of labour
costs per employee to GDP per employee improved
in 2011, but less than in most other countries in the
euro area and the EU. After three years of growth, in
2011 real unit labour costs dropped due to lower wage
growth. Amid slight weaker economic activity and a
slower decline in employment, labour productivity
growth was also lower than in 2010, but still
somewhat higher than growth in the compensation
of employees per employee. Manufacturing, which
had suffered a greater loss in cost competitiveness
than other sectors of the economy in 2008–2009, also
recorded a greater improvement in 2011. Slovenia was
among EU and euro area countries with smaller gains
in cost competitiveness in 2011. 6 Its worse position
was primarily a result of lower labour productivity
growth.
Having deteriorated less than in the Slovenian
economy in 2008–2009, the cost competitiveness
in the EU as a whole improved in 2010. In 2010, real
1
In 2000–2007, real unit labour costs dropped by 0.4% annually,
on average; in the second half of the 1990s, by 2.6%.
2
The decline in employment in manufacturing was also larger
than in other sectors of the economy, but failed to totally offset
the negative effects of the larger drop in value added on labour
productivity. In 2009 employment would have dropped even
more, had the government not passed two intervention acts
to preserve jobs during the economic crisis (see the indicator
Employment Rate).
3
In addition to the effect of changes in employment structure.
4
In 2000–2007 the improvement in cost competitiveness was
more pronounced than in Slovenia in eleven Member States,
in 1995–1999 only in one (Ireland), with Slovenia sharing the
second/third place with Estonia.
5
The average annual drop of real unit labour costs in 2000–2007
in Slovenia was 0.4%, in the euro area 0.6% and in the EU 0.5%;
in 1996–1999, in Slovenia 2.6%, in the euro area 0.8% and in the
EU 0.6%.
6
Among the 23 EU countries for which data are available, 15
countries recorded larger drops in real unit labour costs than
Slovenia and 9 among the 15 euro area countries.