What is the unit labor cost?

When we talk about unit labor cost we refer to a measure that tells us how much it costs us to have a certain worker in a company based on the productivity it offers. In other words, we mean the fraction of the productivity that the worker has to divert to remuneration of the salaried work you hire.

How to calculate unit labor cost

When the unit labor cost increases, it can be interpreted that the labor of the company has become more expensive, so that more salary has to be distributed among the products. This is a problem when it comes to repaying the capital that was initially invested in the company. On the contrary, a reduction in unit labor cost is a reduction in labor costs.

Since we have said that this cost is based on remuneration and productivity, the concept is calculated as follows:

Coste laboral unitario = Remuneración por trabajador / Productividad x 100

We have two concepts that, in turn, we can calculate it in the following way:

  • Compensation per worker: Sum of workers' wages / Number of workers. The result obtained would be a concept close to the "average salary"
  • Productivity: Gross Domestic Product (GDP) / Employed Population

It should be noted that the data that we will obtain on the unit labor cost will be from a specific territory, for example from Spain, since for the calculation of this measure we must use data such as GDP. GDP is a measure referring to a specific territory, especially Spain. In addition, other measures are used, such as the occupied population of the territory, among others.

The result obtained by calculating this ratio is a percentage that reflects the total earnings that, on average, an entrepreneur in Spain must allocate to pay salaries.

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