Labour share of production: indirect costs matter for low and medium wages

Firms use labour to produce a good or a service, but they use intermediate consumption too, whose production also requires labour (indirect labour). On average for all goods and services, direct and indirect labour costs account for half of production, with two thirds being direct labour costs and one third indirect costs.

The direct labour share in the production is lower for manufactured goods, which are less labour-intensive than market services. However, the share of the indirect labour cost (i.e. labour costs stemming from intermediate consumption) is relatively homogeneous across products, suggesting that firms systematically use the same services such as transport and trade services, financial, legal and accounting services or support services (temporary employment).

For low and medium wages, defined as below 1.6 times the minimum wage and targeted by most measures to reduce social security contribution, the share of direct and indirect labour costs in the production of market services (especially for accommodation and food services and temporary employment services) is quite higher than for manufactured goods. Finally, among manufactured goods, the most exported goods are characterized by a high share of imported intermediate consumption in the production.