This article showcases ongoing work within ONS to develop a new unit labour costs indicator for the UK by building upon the existing unit wage costs series. It begins by examining the concept of unit wage costs, describing what the series aims to measure and explaining some of the conceptual difficulties when estimating data in practice. The first issue concerns the series used to measure the labour costs of employees; wages and salaries are currently used instead of the more comprehensive compensation of employees (CoE) series.
Secondly, the labour costs of the self-employed are not satisfactorily estimated by the current method. Two possible methods for the development of a unit labour costs measure are outlined; both incorporate CoE as their employee labour costs measure, but take different approaches to estimating the labour costs of the self-employed. The article concludes that the preferred model for estimating unit labour costs proxies self-employed labour costs by applying the ratio of CoE to the sum of CoE and gross operating surplus in the employed sector to mixed income, a measure of total earnings in the self-employed sector.
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