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There is currently no international definition of a labour price index (LPI) or international standard for the compilation of such indicators.

The United States Bureau of Labour Statistics (BLS) defines a labour price index (their Employment Cost Index) as an index designed to measure changes in the hourly compensation of a fixed “basket of jobs”.

In that sense LPIs are similar to other price indices such as the consumer price index (CPI) which measures the price changes in a fixed basket of consumer goods. The focus of an LPI is to measure changes in the price of labour, defined as compensation per employee hour worked.

The Australian Bureau of Statistics similarly defines an LPI (their Wage Cost Index) as an index that measures changes over time in wage and salary cost for employee jobs unaffected by changes in the quality or quantity of worked performed. Changes in wages and salaries resulting from changes in the composition of the labour market are excluded from LPI movements.

Finally, Eurostat, in its initial work on the development of an European Union LPI defines it as being an instrument to measure changes in average hourly labour costs.

The aim of an LPI therefore is to provide a pure price index. In common with other price indices the “purity” of an LPI depends on the success in holding quantity and quality changes in the labour input constant. These changes that may occur from one period to another comprise a number of influences: including movement of employees from one sector to another (e.g. manufacturing to services), shifts from unskilled to skilled employment, from full-time to part-time employment. Longer-term changes can occur when the workforce increases skill level.

Labour cost indices on the other hand measure changes in average hourly labour costs, taking into account not only price changes but also changes in the composition and the characteristics of the labour input. In an LPI therefore, even if there are no changes in wages or salaries or indirect costs attached to individual jobs, the labour cost index can increase or decrease because, for example, the share of overtime hours may have increased or the share of low paid workers in a certain industry increased.

There is variation in the approaches used in Australia, New Zealand and the United States in keeping quantity and quality changes in labour input constant.

There is also no current international standard defining the component items of the price of labour services to be included in LPIs. All three countries include components of wages and salaries though there are differences in the inclusion or exclusion of non-wage benefits costs. Although the indices cover a large portion of the components that make up the total price of labour services they cannot be equated with the components of labour costs as defined by the International Labour Organisation.

Source Publication:
"A Review of concepts and national experiences on wages, labour cost and labour price statistics", an unpublished paper prepared for a meeting of the OECD Working Party on Employment and Unemployment Statistics, June 2002.

Cross References:
Labour cost – ILO

Statistical Theme: Prices and purchasing power partities

Created on Friday, July 19, 2002

Last updated on Thursday, April 17, 2003