Personnel Costs and Labour Productivity: The Case of European Manufacturing Industry

Alina Stundziene,Asta Baliute

doi:10.3390/economies10020031

Abstract

The objective of the article is to evaluate the impact of personnel costs on apparent labour productivity by employing the 1995–2018 panel data of the manufacturing industry in 27 European countries. The methods of independent samples t-test, correlation analysis, Granger causality test, unit root test, and ARDL were employed. The analysis shows that a long-term relationship exists among personnel costs and apparent labour productivity, and there are not significant differences among European countries concerning the impact of personnel costs on apparent labour productivity, but it varies in time. Companies often avoid increasing wages, as it decreases the profit of the company, and seek to increase the turnover in order to reduce the cost of goods sold. This research shows that growth of personnel costs does not necessarily mean lower profitability. The growth of personnel costs increases the gross operating rate if the turnover per person employed is stable. Turnover growth has a positive effect on apparent labour productivity, but a negative impact on the gross operating rate. Thus, the impact of turnover on apparent labour productivity is significantly lower than the impact of personnel costs on apparent labour productivity.

Highlights

The high quality of the labour force can be considered as an indicator of labour productivity, which is one of the key endogenous drivers of competitiveness of a company.The research problem on how to increase labour productivity remains a topical issue for developing as well as developed nations, as it is closely related to the processes of long-term sustainable development (Herman 2020)
Average personnel costs—thousand euros (AC); employer’s social charges as a percentage of personnel costs—percentage (CH); share of personnel costs in production—percentage (CPR); share of personnel costs in gross value added—percentage (CGVA); of wages and salaries in gross value added—percentage (WGVA); share of social security costs in gross value added—percentage (SSGVA); other indicators related to the industry or macroeconomics:
The apparent labour productivity varies among European countries significantly and the highest ALP exceeds the lowest ALP more than eight times

Summary

Introduction

The high quality of the labour force can be considered as an indicator of labour productivity, which is one of the key endogenous drivers of competitiveness of a company.The research problem on how to increase labour productivity remains a topical issue for developing as well as developed nations, as it is closely related to the processes of long-term sustainable development (Herman 2020). The question of whether personnel costs and wages matter for the level of labour productivity and allow attracting motivated employees is relevant to every company which wants to gain comparative advantages in competing markets. Since our empirical study is focused on the links between personnel indicators and labour productivity, we concentrate our attention on arguing the causality which runs from real wages and other components of personnel costs to labour productivity. The relationship between wages and productivity garnered a great deal of attention from researchers who were trying to justify the links between these two indicators (Katz 1986; Erenburg 1998; Wakeford 2004; Mora et al 2005; Feldstein 2008; Zhang and Liu 2013; Stansbury and Summers 2018; Herman 2020). Other empirical studies were directed towards the analysis of interrelation in a set of indicators: labour productivity, real wages, temporary employment, and unemployment

Objectives

Methods

Results

Conclusion