LAST week the OECD released their quarterly “Unit Labour Costs and Related Indicators”. You can see some of the figures from the report in the chart at right, where unit labour costs are broken down into the contributions from wages and productivity. Costs were generally rising in the second quarter, but were up sharply in Norway and Australia. Why does this matter?

Unit labour costs are the best estimate of staffing costs faced by firms. They represent the amount of money needed to pay your staff to make one unit of output, one widget. This is a function of two elements, the cost of the staff—their hourly wages—and the speed at which they make widgets, their productivity. Expressed in growth rates unit labour costs are roughly equal to growth in wages minus the growth in labour productivity, per widget. In America, in the second quarter, unit labour costs increased by 0.8%, this consisted of a 1.0% increase in wages and a 0.2% increase in labour productivity.

America and Canada demonstrate a common pattern. Wages there rose faster than productivity in the year to the second quarter, leading to small increases in unit labour costs, or moderate wage inflation. Wage inflation ultimately leads to increases in consumer prices as higher nominal wages boost spending power. Normally, and especially now, this is not a concern; a little bit of inflation is better than a little bit of deflation. Within the euro zone, Germany and Finland, and the Slovak Republic display similar trends.

Contrast that with the situation in Norway and Australia, where rising wages and falling labour productivity are generating unit labour cost increases above 5%. This is indicative of a tight labour market; firms are forced to increase wages to hold onto workers and must occasionally employ lower skilled workers than they'd prefer, leading to decreases in average labour productivity.

So what's up with Norway and Australia? Both economies are heavily dependent on natural resources. Unlike manufacturing jobs, natural resource industries aren't susceptible to offshoring when labour costs soar. You have to mine coal where the coal is. Good times for commodity producers have also buoyed their domestic economies, though more so in Australia than in Norway.

At any rate, central bankers in Australia will be keeping a close eye on the development of labour costs. In America and much of the rest of the developed world, workers may only wish they had such problems.