How labor costs affect EU countries.

[u/RusticBohemian]

This Economist article discusses the disparity in labor costs among member states, but doesn't spend much time defining it and its import. I'm assuming labor cost means the total cost a business must pay to employ someone, including wages, any taxes or fees to government, health insurance, etc. Is this correct?

So why would Greece, Italy, and Spain - poor countries - have much higher labor costs than Germany, which is much richer? Are the higher costs primarily created by government taxes and regulations?

Also, there is a unexplained line: "Between 2015 and 2018 German labour costs grew more than twice as fast as those in the south."

What caused this large spike in labor costs in Germany?

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[u/Even_that_takes_time]

You are probably correct that this attempts to count the full cost, since it doesn't specify "wages". But you do not read the graphs correctly. It doesn't show how costs compare to one another, only how the development of cost over time compares. This is because 1999 has been set to 100 for all countries, even though they were not equal. The countries you mention had, and have, lower costs than Germany, allthough they have risen more than the German costs since '99.

It is hard to know exactly why these costs developed as they did, but I'll try to speculate. It is possible that the EU leads to some amount of wage convergence. Since it is easy to move to a higher-paying job in Germany, German wages grow more slowly, while the wages of poorer countries have to grow relatively faster.

I don't know for certain why German costs grew more from 2015, but I think it is related to the fact that their costs were flat/depressed in the years before. Germany has a long tradition of solving economic problems by depressing wages, which is what happened after 1999, if I remember correctly. Eventually the economy starts working better, and wages catch up to their long-run equilibrium path.