Definition: Labour cost index

Category: Labour market

1) Labour cost indices (LCI) show the short-term development of the total cost for employers of employing the labour force on an hourly basis. Total labour costs include employees' gross earnings and indirect costs. Gross earnings include direct remuneration and bonuses as well as the value of any social contributions, income taxes, etc. payable by the employee, even if actually withheld by the employer and paid directly to social insurance schemes, tax authorities, etc. on behalf of the employee. Indirect costs include the social contributions incurred by employers in order to secure for their employees the entitlement to social benefits. Indirect costs also include taxes connected to employment minus received subsidies intended to refund part or all of the cost of direct remuneration. Indices are based on the national currencies, and are not influenced by exchange rates.

2) The labour cost index (LCI) is defined as the Laspeyres index of labour costs per hour worked, chain linked annually and based upon a fixed structure of economic activity at NACE Rev.1 section level.

The labour costs are the total quarterly costs incurred by the employer in the employment of labour. 2) European Union Regulation 450/2003 concerning the labour cost index