Slight Deterioration in the Labor Cost Position of Austria's Manufacturing Industry Due to Exchange Rate Changes in 1993

Unit labor costs in manufacturing, which had risen by more than 3 percent in 1992, stagnated in 1993 (+0.2 percent). Wage increases slowed down from 6 percent in 1992 to 4.6 percent in 1993 and were nearly offset by productivity gains. Wage increases in 1993 were about as high as productivity advances. Nonetheless, the competitive position of Austria's manufacturing sector worsened slightly: the increase in unit labor costs in Austria's major trading partners was higher by some 1½ percentage points (EU 2 percentage points) than in Austria; at the same time, however, the effective rate of revaluation of the schilling was 2 percent, so that relative labor unit costs in a common currency rose by 0.4 percent, after 2.3 percent in 1992. In the wake of the monetary crises in the EMS and the Scandinavian countries, most currencies devalued against the European hard-currency countries Germany, Switzerland, the Netherlands, and Austria; only the yen (+21 percent) and the US dollar gained vis-à-vis the schilling in 1993. Thus, unit labor costs rose significantly faster than in Austria only in Japan (+26 percent), the US (+3.5 percent), and Germany (+3.2 percent). In the devaluation countries, such as Sweden (–22 percent), Finland (–19 percent), Italy (–17 percent), Spain (–14 percent), and the United Kingdom (–10 percent), labor unit costs dropped markedly. Hourly labor costs in manufacturing in Austria totaled AS 233.80 in 1993. These costs are composed of wages amounting to AS 120.10 and additional costs of AS 113.70. Thus, direct labor compensation is relatively low in Austria, but additional costs are relatively high, amounting to 94.7 percent of direct labor compensation. The share of additional costs, which rose steeply in the seventies and eighties, has stagnated since 1988. In the hierarchy of labor costs (wages plus additional costs) Austria ranked seventh in a comparison of the nineteen most important OECD countries. The costs of the production factor labor in Austria were 6½ percent higher than in the EU on average. Only West Germany (+28 percent), Switzerland (+16 percent), Belgium (+11 percent) and Norway (+6 percent) posted higher labor costs than Austria. Labor costs in Italy and France, which as recently as 1992 were as high as in Austria, fell 15 percent and 5 percent respectively, below Austria's level as a result of the exchange rate alignment in the EMS. In the former high-wage countries Sweden and Finland hourly costs in manufacturing were 8 percent and 25 percent respectively, lower than in Austria. Hourly labor costs in Japan and the US were only 85 percent of Austria's level, and as low as 70 percent in the United Kingdom. Output in Austria's manufacturing sector advanced by 4.9 percent in 1993. Despite the cyclical downswing, hourly productivity rose by 4.4 percent in the same year; only Ireland and Finland posted higher growth rates. The productivity gains of Austria's trading partners were only 1¼ percent on average; the growth rate was 2½ percent in the EU and in Germany.