Greece vs European Union (EU): the Labor Cost Index

Periklis
By Dr. Periklis Gogas, an  Associate

Professor, Department of Economics,

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Ms. Sofia Christakidou, Senior Economics Student,

 

 

Democritus University of Thrace


What is The LCI?

In any economy, capital, labor and technology are the most crucial production factors in the supply process of all goods and services. ”The quarterly measured Labor Cost Index (LCI) is a Euro Indicator that measures the cost pressure arising from the production factor “labor”. The data covered in the LCI collection relate to total average hourly labor costs and to the labor cost categories labeled as “wages and salaries” and “employers’ social security contributions plus taxes paid minus subsidies received by the employer”. Data, also broken down by economic activity, are available for the EU as a total and EU Member States” (from the Eurostat website). All sectors of the economy are included with the exception of agriculture, forestry, fisheries, education, health, community and social/personal service activities. The LCI is a Laspeyre index. In other words it calculates the total cost of labor as a rate of change between a base year and the year we examine. For Greece this base year is 2012. The numbers in the Figure below are calculated as the arithmetic mean of the quarterly values. The vertical line shows the rate of change in costs of labor and the horizontal one the time that this change has occurred. The grey line represents the LCI for the Euro area countries and the orange one for Greece. The LCI, except from assisting enterprises in the decision making process, also helps European Central Bank and the European Commission to sense the stability of prices. The U.S. use a similar index, the ECI (Employment Cost Index) that is calculated by the Bureau of Labor Statistics.

What can we conclude from Greece’s LCI?

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The Organization is a Dynamic, Social System


DRJOHN2Dr. John Psarouthakis,
Executive Editor, The Business Thinker.

Once created, your company begins to take on a dynamic of its own. In spite of your best efforts, you eventually discover that you cannot control every action or outcome within your company, much less those actions impinging on it from outside. Why? According to open-systems theory, your company is part of a multi-tiered set of social systems. At one tier, your company is made up of individuals with freedom to choose and act, creating their own dynamic situation within the organization. In turn, your company interacts with individuals and organizations at higher levels of social systems beyond the organization’s own boundaries, further adding to its dynamic qualities. The Figure below illustrates this idea.

Dynamic

 

 

 

 

 

 

The Organization is Part of Multitiered Set of Dynamic Social System.

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The Organization Needs to Combat Entropy (disorder) to Survive

drjohn11a
Dr. John Psarouthakis, Executive Editor, The Business Thinker.

This is a brief summary of the issue of disorder in Dynamic Management of A business.

Every organization needs to combat entropy or disorder to survive. The natural course of the universe is toward further disorder, according to the Second Law of Thermodynamics. But on a local level, order can be restored. You can counter entropy within your own company by understanding how open systems fight chaos: Inputs are brought into the system, transformed in some manner, and then exit as outputs. These outputs (your products or services)—are then exchanged for new inputs. To counter entropy, this input-transformation-output (I-T-O) cycle must continually repeat itself during the life of the enterprise. The more efficient the transformation process, the more resources are left over for future use.

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