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Eurozone industry losing focus on the fundamentals
The recent practice of industrial companies in the eurozone that have increased labour costs in the face of declining production cannot be sustained.
The latest figures published by the EU's statistical agency Eurostat reveal that hourly labour costs in the industry sector rose by 2.5% across the eurozone over the year to Q1 2012. However, over a very similar period - the year to April 2012 - industrial production fell by 2.3% in the eurozone.
Companies are continuing to make significant pay increases though in Italy (+1.5%), Spain (+2.2%) and Portugal (+1.5%) despite falls of 9.2%, 8.3% and 7.6% respectively in industrial production over the last year.
Expressing concern about these developments, the Secretary-General of the Federation of European Employers (FedEE), Robin Chater, said yesterday:
"This trend illustrates the dangers of companies seeking to maintain the spending power of their wages and salaries rather than responding to the economic essentials of production and productivity."
"A new approach is called for in labour relations where base pay is a much smaller element in total remuneration and employees directly experience the rise and fall of industrial fortunes. Current pay systems belong to a past age when employers simply responded to economic downswings by shedding labour.
"Modern employers realise that as economic trends are largely cyclical it makes little sense to make workers redundant only to start recruiting months later when business picks up. Unfortunately rising payrolls as times get tougher can only frustrate such an approach and drive the economies of Italy, Spain and Portugal deeper into crisis."
The Federation of European Employers (FedEE) is the leading think tank for multinational companies operating in Europe.
21st June 2012