International differences in wage and nonwage labor costs

The ratio of nonwage labor costs (for social security, pensions, vacation days, severence compensation, and the like) to direct wage costs is proportionately higher in Europe and Latin America than in Asia and Africa - largely because workers there are protected more by regulations. The distortionary growth of labor costs because of increasing nonwage costs is not common in the LDCs however. The author of this paper found that international differences in labor costs are attributable largely to differences in labor productivity and capital-labor ratios. The author also found that labor costs declined significantly in almost all LDCs in the 1980s, and that the impact of declining labor costs on manufacturing employment was statistically significant - and bodes well for the growth of nontraditional exports. International differences in labor cost levels are important, especially when one compares LDC and industrial economies. But differences between labor cost levels in terms of per capita output are not so large. This suggests the importance of different capital-labor ratios.