Profits rose more than labor costs in most OECD countries, but in Portugal it was the opposite

The evolution of labor costs and corporate profits, and their relationship with the current inflationary push, has marked the present and the economic debate and is one of the themes analyzed in the Employment Outlook 2023, of the Organization cooperation and development (OECD), published on Tuesday.

Conclusion ? Between the end of 2019, before the pandemic crisis, and the first quarter of this year, profits rose more than labor costs in the vast majority of OECD countries. But Portugal is one of the exceptions.

“Over the past three years, labor costs per real unit of output (unit labor costs) have increased in most OECD countries, with nominal wage growth outpacing productivity growth,” the report said. . And he explains that this indicator is obtained by dividing the compensation of workers by the real gross domestic product (GDP).

At the same time, profit margins, measured by profits per unit of real output (unit profits, obtained by dividing gross operating surplus by real GDP), “have also increased in most countries, which indicates that, in aggregate terms, companies were able to increase prices in addition to the increase in the cost of labor and other contributions“, points out the OECD.

Indeed, “in most countries, unit profits increased more than unit labor costs in 2021 and 2022”, underlines the organization. Specifically, in 24 of the 29 countries analyzed, profits increased more than labor costs between the end of 2019 and the first quarter of this year.

“As a result, over the past two years earnings have made an unusually large contribution to domestic price pressures,” the OECD writes.

This conclusion echoes the results obtained by the European Central Bank (ECB) for the euro zone. A recent study points out that unit profits have accounted for around 60% of internal price pressures in the euro area, over the last three quarters (in the third and fourth quarters of 2022 and the first of 2023).

In Portugal, however, as in four others of the 29 countries analyzed, the increase in labor costs exceeded that of profits during this period.

Data presented by the OECD indicate a 19.2% increase in unit labor costs, compared with an 8% increase in unit profits.

The OECD also calculates changes in real unit labor costs, which measure the difference between changes in unit labor costs and changes in output prices (eg the gross domestic product deflator).

Well, “real unit labor costs fell in 18 of the 29 countries for which data are available,” the study points out.

This was not the case in Portugal. “Among the remaining countries, the largest increases in real unit labor costs occurred in Portugal, the United Kingdom and Lithuania,” the OECD points out.

Regarding wages specifically, the organization points out that “despite an increase in the growth of nominal wages, in real terms they are falling”. This is because of high inflation.

Thus, in the first quarter of 2023, growth in nominal hourly wages compared to the same period of the previous year “exceeded the pre-crisis level in almost all OECD countries, reaching 5.6% in average in the 34 countries for which data are available”. », Underlines the document. However, real hourly wages – that is, taking into account the impact of inflation – “have fallen by 3.8% on average, with declines seen in 30 countries”.

In the case of Portugal, the nominal increase was 4.5%, with a real decrease of 3.5% in the average hourly wage.

Compared to the end of 2019, before the pandemic crisis, at the end of 2022, real wages had fallen by an average of 2.2%, with negative variations observed in 24 of the 34 OECD countries for which data are available.

Even in the 10 other countries with positive variations, “inflation has wiped out most of the growth in nominal wages”, underlines the OECD.

This is the case of Portugal, with a positive real variation of 1.3%.

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