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The Stunning Differences in European Costs of Labor: Or Why “Competitiveness” Is A Beggar-Thy-Neighbor Strategy
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
The ominous term, “competitiveness” has been bandied about as the real issue, the one that causes European countries, in particular some of those stuck in the Eurozone, to sink ever deeper into their fiasco. To fix that issue, “structural reforms,” or austerity, have been invoked regardless of how much blood might stain the streets. And a core element of these structural reforms is bringing down the cost of labor.
In Europe’s private-sector, the cost of labor—gross earnings plus employer-paid social contributions, pensions, disability, etc.—is marked by stunning differences. At the bottom of the spectrum is Bulgaria: the average private sector employee costs a company €3.70 per hour worked; in manufacturing even less, €2.90. Romania is right there at €4.50 and €3.80 respectively. Near the top of the spectrum is Belgium at €40.40 and €41.90 per hour worked. But no one beats the Swedes: €41.90 and €43.80. Per hour worked, the average Swedish employee costs a manufacturer over 15 times more than an employee in Bulgaria.
So, relocate all manufacturing plants from Sweden to Bulgaria? Or Romania? Even Greece would be a great place. The cost of labor there is only €14.70 per hour worked, about a third of what it costs up north. It’s the only country in the EU where the average cost of labor actually fell in 2012—and by 6.8%!
But in Spain, which struggles with a similar unemployment problem, cost of labor rose by 1.1% to €20.90, in Italy by 1.7% to €21.90, in Germany by 2.8% to €31, in France by 1.9% to €34.90. The biggest gainers in percentage terms were at the bottom: in Bulgaria, cost of labor rose 6.4%, a whopping €0.24 per hour! In euro terms, the biggest gainers were at the top: cost of labor in Sweden rose 3.5%, or about €1.50 per hour! The cost of labor at the top is running away.
Based on data from the German statistical agency Destatis, this is what it looked like in 2012:
But if enough Swedish companies—and not just manufacturers but all kinds of companies—packed up their machines and robots and cubicles and headed south, unemployment would rise in Sweden. Once unemployment pushes deeply into the double digits, executives will defend their delocalization decisions by lamenting the cost of labor, and soon the government will be talking feverishly about “structural reforms,” without meaning it, and that’s where France is right now. But eventually the situation might deteriorate and pressure wages and associated costs. This has happened in Greece. And they’re all competing with the US, China, Mexico, Bangladesh.... Because competitiveness is not just a beggar-thy-neighbor system.
Alas, the rejuvenated “sick man of Europe,” Germany, isn’t surviving just by cutting its cost of labor. At €31 per hour, it was 32% higher than the EU average, though 11% lower than in France. In manufacturing, it was even more striking: Germany’s cost of labor of €35.20 per hour was 47% higher than the EU average, but still 3% lower than in France. Productivity, infrastructure, transportation costs, corruption, training and education, etc. all figure prominently into this equation. Cost of labor is not the only factor.
Yet German workers have been hit hard: between 2001 and 2010, the cost of labor grew 16%, less than the rate of inflation, while in France, for example, it grew 35%, and in southern countries it jumped far more. In 2011 and 2012, Germany’s cost of labor began to rise with renewed vigor, up 5.9%, but so did France’s at 5.4%.
Much of this money was absorbed by the costs of social contributions, pensions, etc. And they can be breathtaking. The graph below shows these additional costs to the employer per €100 in gross wages paid.
So an average worker in Sweden who earns €100 for a certain number of hours in gross wages costs his employer an additional €51, for a total cost of €151. A Maltese worker, who’d work about three times as long for the same pay, would cost the employer only an additional €10, so €110. And a Bulgarian worker who’d work about 15 times as long for the same pay would cost an additional €18, so €118. This is a conundrum looking for a solution.
Over time, “competitiveness” hollows out the middle and lower classes in some “rich” countries—this has been happening in the US and Germany for years—balloon the middle class in other countries, and make the top in all countries immensely rich. For many people, it’s nothing to look forward to.
Italy has Beppe Grillo, but with European governments reeling from self-inflicted crises, and the euro debacle descending into a tragi-comic farce, one wonders who the real clowns are – especially here in Spain, where ministers gorge themselves on the public purse, leaving behind a trail of evidence so obvious that even the mainstream media can’t ignore it. Read.... Will the Real Clowns Please Stand Up?
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As usual, the same 'american' propaganda.
Competition is not an everlasting process. It is a process used to choose one item over another. It has a start and an end.
For 'americans' residing in Sweden, the competition is over.
They are parted in two:
'americans' residing in Sweden who concentrated enough wealth to live without working.
The others.
The first group is rich enough to be allowed to stay in Sweden. The second is too poor to remain on the long term.
'American' economics is all about transfering wealth from an exterior to an interior. The borders are essential. It is about areas. Not people.
As for 'americans', the group is all, this 'american' author must address his readership in terms like Sweden etc to keep the illusion up. After all, 'americans' are big on fantasy consumption.
When the reality is about people located in the geographical area named Sweden, people located in the geographical area named Bulgaria.
'American' economics is based on areas. Areas of dense consumption, areas of low consumption etc
When one enters one area, one is usually put on par with the consumption level.
Therefore the conclusion is flawed. It is not only about moving the firms, plants etc located in Sweden. It is also about moving all the people who work in those places elsewhere.
As soon as it is done, the newly moved will start earning within local wages.
As a result, it will depopulate areas of very high consumption(therefore alleviate overconsumption) to places of low consumption that can host much more people based on the consumption per capita.
Welcome to an 'american' world. Keep in mind that 'americanism' is the best thing to have ever happened to humanity.
AnAnonymous released this stench:
Made me laugh heartily. Not about people, so AnAnonymous Chinese citizenism propagator gives misnomering when labeled 'american' economics.
Expect response of denial, backpedaling, offuscation, fantasies, crackpottery, etc.
You know, the usual cards played by this guy.
This guy pours contradictature on commentating, first tells not about people, then tells about people. Only consistency exhibited is insanitation of Chinese citizenism walrusian economics.
When one enters Chinese citizenism roadside area, one is usually crapping on par with the excretion level. Very distinct smell on the air given from Chinese citizenism new world odor.
An idiocy as there is always something wrong/good in any condition.
The Chinese Citizenism Communautist Party Chairman example is classical double bind example: the CCCP Chairman's decision is good to them but harm the best interest of some other Chineses. A conclusion that can be achieved as those other Chinese citizenism citizens can not perceive anything in CCCP Chairman as wrong. Therefore they have to turn to the 'americans'.
Extraneity of cause is common among Chinese citizenism citizens.
Expect response of denial, backpedaling, offuscation, fantasies, crackpottery, etc.
________________________
Expect an answer grounded in reality: for 'americans', fantasy is the ultimate shelter as they cant address 'americanism' for what it is.
_______________________________
This guy pours contradictature on commentating, first tells not about people, then tells about people. Only consistency exhibited is insanitation of Chinese citizenism walrusian economics.
_______________________________
There is only contradiction when 'americans' must evade 'americanism' and flee in fantasy.
For the rest, the emphasis is put on the areas. 'American' economics deal in areas, exterior, interior, borders. Not in people.
People located in Sweden or Bulgarian can be Sweden or Bulgarian as they can be not.
But, hey, this matter of fact must not be underlined to 'americans' as for them, the group is all.
Etc
Welcome to an 'american' world. It is a cosy place, you'll see. Fantasy for 'americans', it is their ultimate shelter.
Let's examine the results to see if they confirm expected response of denial, backpedaling, offuscation, fantasies, crackpottery, etc.
fantasy: checked
offuscation: checked
denial: checked
backpedaling: checked
crackpottery: checked
etcetera: checked
Telling that when one has low expectations for Chinese citizenism citizen propagandists, one may be placing the bar unrealistically high in the air.
This is one of the best videos I've ever seen on You Tube. Falk Pema, this is the interview with James Goldsmith.
http://www.youtube.com/watch?v=4PQrz8F0dBI
In an 'american' world, you grow rich by serving the 'american' middle class.
That is the way it works.
In a Chinese Citizenism world, you grow rich in hypocrisy by exercising the roadside crapping ass (and blobbing-up Tibetans' native land).
That is the way shitizenism works.
I'd better hide this for my boss :)
He's complaining about this shit almost every day :)
DO YOU KNOW WHAT YOU COST?!
yeah... not enough...
There's nothing that the rich like to do better than force their middle class workers to compete against each other. We need to set up a system in which governments and the rich have to compete against each other for the benefit of the middle class.
I can hire one half of the working class to kill the other half. Jay Gould
If only our oppressions could be readily discerned by wage levels.
But, as testosteronepit remarked, because other factors such as government, infrastructure, and corruption muddy the waters, wage levels may only be indicative.
What kinds of wealth, spending, and income is taxed by all levels of government, and how those taxes are used comes into play. Maintaining urban life may have higher overhead social, environmental, etc. costs, even on a per capita basis, than rural life. Low taxes and low collective intervention for sewage, transportation, waste disposal etc. in one setting do not necessarily transpose so easily into another setting.
Of course how private wealth and income are divided and spent also factors in. Transparency in the private sector is also required to make informed decisions. Inasmuch as resources are monopolized, effects of pollution hidden, and prejudices and consumerism propagandized to an ill-informed public, the importance of wage levels will be compromised.
Then there is militarism. A trillion dollars spent on war making is a trillion less for other pursuits. Defending “freedom”? Questionable inasmuch as transparency, a vital requirement for democratic freedom is negated with militarism. Lack of transparency, concentration of wealth and power, concentration of decision-making, “emergency” abuses of human rights, are all packaged together. Questionable also inasmuch as foreign despotic regimes are allied with and supported, and foreign peoples are plundered to benefit a few.
Finally, there are the finances, typically obtuse to advantage some. “Money” creation, ownership and access to resources, borrowing and interest, unproductive speculation and outright unprotected fraud, all will reduce the value of wages paid.
Don't forget "A trillion dollars spent on war" also means destruction somewhere else.
Private enterprise makes the wealth, government confiscates it, the military destroy it.
What counts to a business is the total labor cost per unit of output. Thus, labor productivity is the important metric, not hourly compensation. Producivity includes management oversight costs as well. If you have low cost labor but the factory is half a world away, management can beat itself to death trying to propery run the place and get it to produce quality products.
Yes and as you see in China and elsewhere with no history or culture in capitalism, when the cash flows to those countries and they build bridges and infrastructure, and it flows to the new "middle class", if they buy anything foreign at all, these people buy only the multinational products like Ipads and movies...and that cash is trapped outside the US. Never repatriates and makes the hollowed out middle class vibrant again.
If we all make shit and get paid for making shit,we herd up and go buy shit.
Over decades our purchasing power is diminishing.
Who gonna buy da shit down the li e.
Chinese maybe.
??????
Of the total cost of €151 in Sweden, how much does the Swedish worker get in his own wallet, net of all taxes and contributions? €60, maybe?
Great observation Luke! What testerone forgets is the taxes on European wages would equal riots in the streets in the USA. But do not worry as we head down the road to the European model you will have higher taxes until you realize fuck it why work when the gov will give you something for nothing and your chicks for free! The big difference in our system and mowst of the European model is those on the safety nets in Europe must repot to the office abd do assign work in te community.
In the USA you sit at home and do nothing.
No, in most of europe the unemployed don't do assigned social work. They sit at home trying not to spend much, jut like in the USA.
Wolf Richter has just discovered "hot water" in the capitalist kitchen.
I remember a debate involving "outsourcing", then newly hatched official NWO meme when it all began around 1988-1991 under Bush Father.
A leading financial predator of that age, Jimmy Goldsmith, came out virulently against it saying : So these guys want to ship our western industrial savvy to Bengladesh on the pretext that labour costs are <1$/day?
What kind of suicidal logic is that? Our civilization dies!
Didn't stop it from happening Wolf!
So what we see in Delors's Europe built on those famous three pillars of free markets : free movement of capital, of people and of goods, applies here; as under Pax Americana NWO/WTO meme all over the world; PROVIDED IT SUITS THE RULING OLIGARCHY, aka Germany-France linkage under Delors; Usa-China linkage under Bush and consorts. Now that Korea and Asia are entering bigtime the Euro game its causing further social mayhem.
Once you have baked the cake you have to eat it!
Ask Jimmy Goldsmith's ghost on the consequences of such awesome decisions!
Excellent observations falak:
Many comments in this thread are not looking at the big picture globally. The big picture is this.
- The capitalist system has evolved into major trading blocks where LABOR is a commodity. The only constraints on labor are political (social costs and who pays,) and Energy, (cost of moving goods and services) below the thresh hold of local/country wages. Labor completion has therefore been removed, except in the most unique of occupations where there is low supply of specifically educated labor to fill a larger demand.
- Education/Knowledge: Other than language, technology has equalized this. The elite institutions have tightened their grip on education based on exclusivity, while most entry/mid level education has been "pushed out" to anyone who wants it throughout the planet, for a fee. Furthermore as education has taken on a "technical nature," the ability to consider, think, analyze has been slowly removed from the education process. The process of acquiring education through thinking and analyzing provides little value within the current environment.
- Guaranteed Platforms for doing business:
1. Central Banking debt based capital systems are tied together, allowing for capital allocation anywhere on the planet.
2. Low energy costs allow for the cheap movement of goods and workers without labor constrains from countries or economic blocks.
3. Implied/Guaranteed military protections provided by the US military/NATO and other defense treaties. This not only helps the countries involved, but by extension all others.
4. Multinational Corporations Business Model (processes,) has been adopted as the de facto way of doing business. Regardless of industry, governments will protect these at any cost, including shafting their own citizens. These large corporate entities, then become the template for doing business in most developed countries even for small and medium sized businesses.
Robots can't be beat. Ask John Henry - a guy from a day when robots were just mechanical.
Automation and Capitalism - Stefan Molyneux
John Henry could not beat that steam drill, so he laid down his hammer and he died. He was a steel driving man. His descendants are playing in. The NBA/NFL and going to Harvard on an affirmative action program.
and they share a common currency? what a stupid idea. no wonder that that european union is coming apart.
Some of them do, some don't. Nevertheless, they are all presented in one table.
It would be interesting to include Switzerland (very high costs) and the US in the table.
Another factor is the difficulty/cost of letting people go in a downturn. In some countries like Belgium and France it is hugely expensive to make people redundant when they have been there for years sometimes to the extend that the whole business goes bust. A Swiss employer told me that although costs were very high it was easy to fire people if needed so there is no reluctance to take on more staff if needed.
Guess where there is more unemployment, France/Belgium or Switzerland?
Some had this nailed when it started:
http://www.youtube.com/watch?v=4PQrz8F0dBI
Endless pursuit of the cheapest possible labor costs - ignoring all other facctors - has led to the economic suicide of the west. It is NOT a 'level playing field' and ignoring all other foctors to produce goods with the cheapest possible labor harms the planet as a whole and destroys the job base of 'advanced' countries, undermining their societies. On a planet of limited resources, producing throwaway goods with the cheapest possible labor costs is the worst thing you could do. You deplete resources, further pollute the planet and impoverish the maximum number of people - all to earn a larger 'profit' which benefits a very few.
Limited resources? Sure. But the limit is the solar system.
Mars ain't the kinda place to raise your kids.
A poor article. Although it is once mentioned that aspects like productivity growth play an important role in determining wages, the author does not try to incorporate this into the equation. Take the example of Germany: Before the Euro crisis hit, a lot of German private wealth was invested in Southern Europe. As a lot of it has been repatriated in the last years and invested domestically, capital per unit labor has increased significantly justifying higher wages. Or take the example of Sweden: Although the average wage is expressed in Euro, Sweden still has its own (free-floating) currency. Any decrease in competitiveness and thereby economic growth is likely to be countered by a devaluaton of the Swedish Krona. This also applies to other countries like Romania, Poland, Hungary, or the Czech Republic. An isolated view on labor cost does not tell us a lot.
What? Only 30% contribution in the Netherlands? That must be wrong, esp for those with modest income... Oh, it's on average, so the high amount of low-income with subsidiation on rent etc come into account.
Germany no different, with a remarkeable working class forced to work for an euro per hour added to their benefits...
I love statistics, nowhere else you can proof the truth positive of outright lies that easy.
Good info and great writing.
Silly article. What is the alternative? Outlaw markets?
Why pay $12 for an ice cream cone when it can be had for 8$?
If price is not an issue, then why not simply pay $100 for the cone?
"beggar-thy-neighbor" is simply competition. And what would be the consequences of a national/international economy where prices had no function?
Does anyone really think Stalinist price controls would work well?
I don't think the article was assigning moral blame. It was simply recognizing the very facts you pointed out - when given a choice rational people tend to buy things that are cheaper if the quality is not too bad. We have good examples in North America. We go to Mexico who goes to Guatemala. And of course, price controls won't work since that destroys the whole reason for an economy in the first place - determination of value. How can anyone know the real value of anything if the output price is controlled?
Silly is as silly does... for decades the Dutch, with one of the most miserable climates, and no appreciable energy resource advantages, were able to produce and market flowers and fresh produce to Europe AND far off Norte Merika...outdoing competitors with buiilt in advantages...
cue a power hungry bureaucratic centralized control clique in Brussels, operating upon the premise of every politically correct canard that can be dreamed up over taxpayer-subsidized luncheon, and you have...
a mess. That's what Eurocrats make best! Extremely soon, in addition to seeing 'coals'(or their LNG btu equivalents)brought to Newcastle, you can be sure to see cut flowers from Kenya landing in the CLOCK auctions of Amsterdam...
no doubt, they will simply call it 'competition'...or some other Orwellian inversion of common sense...
Does anyone really think Stalinist price controls would work well? Dunno...with your kind of closed box thinking, it's impossible to see anything other than variations upon the same theme...State Capitalism disguised as 'the work of the market'! This article was simply over your head.
Another excellent post
-We will all be "Cold, Smelly and Hungry", and those who survive will "Work" for free...
Come to Portugal - it's sunnier!
Swedish truckers are being replaced by cheaper labour from Southeast Europe. They drive for a fraction of a normal salary and they often steal the dieselfuel from unmanned filling stations.
Do they get bonuses for that?
...Over time, “competitiveness” hollows out the middle and lower classes in some “rich” countries—this has been happening in the US and Germany for years—balloon the middle class in other countries, and make the top in all countries immensely rich....
reveal useful facts and then analyze what they mean - creating better understanding of events . Now that's journalism! Top Notch Wolf!
The uptake friom this is clear...the situation calls for more solidarity between the people of Europe - whose common dilemma and common cause is the predator class which must be uprooted and expunged...once agin!
The world's largest bearing manufacturer (SKF) is based in Sweden, but with factories all over the world, including Eastern Europe. I have not kept up with developments re SKF's large purchases of the clapped-out bearing makers there in Eastern Europe, but they were fairly big purchases.
I would be interested to know if those plants are supllying the OEM markets solely, or whether an "SKF - Bulgaria" is accepted in the aftermarkets.
Note too that all the big bearing manufacturers (including the USA's Timken) have plants all over the world: India, CHINA, Brazil, Mexico, Argentina... The list goes on.
Well, SKF supplies B-to-B MRO suppliers with a pretty large assortment but that's on a local level.
SKF trade is totally different meaning SKF Bulgaria can only sell in Bulgaria.
you have to devalue. the problem is not "cost" per se but access to markets. The Common Market is collapsing...it appears to be a "controlled demolition" but a demolition nonetheless. Germany is so massive within the Eurozone it has in effect "become" the Eurozone. to me that makes what they need to do far too easy: "what's good for Germany is good for Europe" and vice versa. This is exactly what's been going on four years running now...I'm sorry but this paradigm is not going to shift. in order to "justify" these high wages and benefits you have to generate inflation. Devaluation has the added value of "creating" competitiveness. I mean you all tell me...is there some complicated and unworkable plan being conceived of here? Or "did DieselBOOM really speak for Zee Powers Zat Bee" when he flatly stated "this is a template"? Sure it ain't pretty...no break up ever is. http://www.youtube.com/watch?v=Q1njpW7Fw84
And the sad part is ...
all of these wages and benefits are paid for with borrowed money.
Right Steve, but, if they learn well from Bernanke they don't have to pay it back.
But I thought globalization was supposed to make everyone wealthier. I guess by "everyone" they meant the .1%. Of course the .1 % are pretty much convinced that they are everyone who matters -- being such productive good Randites and all -- so I guess technically "they" were right.
On average we're all richer
race ya to the bottom bitchez.
the most valuable 3 minutes you will ever spend
http://www.youtube.com/watch?v=27Hfd853J50
spoiler: dober vecher!