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| Concepts |
| Key statistical concept Unit labour costs (ULC) measure the average cost of labour per unit of output and are calculated as the ratio of total labour costs to real output. |
| Manipulation |
| Estimation Raw quarterly unit labour costs are calculated as the quotient of the temporally disaggregated (benchmarked) quarterly time series of total labour costs and real output. This raw ULC is then seasonally adjusted using the TRAMO-SEATS package. In addition to the seasonally adjusted series, TRAMO-SEATS produces a Trend-Cycle series which includes all non-seasonal and non-irregular movements in the underlying time series. This series can be regarded as a smoothed seasonally adjusted series, where the degree of smoothing is dependent on the underlying ARIMA model and will thus vary from series to series. Quarterly unit labour cost indexes in OECD base year are available in raw, seasonally adjusted and trend-cycle form. Furthermore quarter-on-previous-quarter and annual rates of change are presented for the seasonally adjusted and trend-cycle series. Seasonal adjustment Seasonal adjustment is performed using the TRAMO-SEATS package. The seasonal model for each series is reviewed annually. For quarterly updates within each year the model is held constant but the parameters (coefficients) are allowed to vary - referred to as concurrent adjustment. If major revisions to input quarterly indicator series are observed then model re-identification may be undertaken. Other manipulations In the interest of producing long time series for empirical analysis, the quarterly unit labour cost index trend-cycle series for each economic activity have been extended to have the same length as the corresponding annual series (i.e. in most cases back to 1970). This has been achieved by interpolating the annual unit labour cost index to create a quarterly series using the Denton temporal disaggregation technique. This interpolated quarterly series is then linked to the actual quarterly trend unit labour cost index to extend this time series at the point where quarterly indicator data is no longer available. This linked part of the trend series is clearly indicated with a control code of ‘E' in all electronic outputs. The structure of the trend series may often appear different after the link point, given that the most recent years of the time series are derived from an ARIMA model and the historical linked part is an interpolated annual series. |
| Other Aspects |
| Recommended uses and limitations The OECD has performed extensive testing of the TRAMO-SEATS trend-cycle methodology and found that it significantly reduces the volatility of estimated quarter-on-previous-quarter rates of change whilst still effectively extracting the underlying signal in the raw data. Due to the volatility inherent in a derived series such as the ULC, the OECD recommends the trend-cycle series be used for the purpose of short-term analysis, in particular when interpreting the latest movements in the quarterly series. |