Changes in unit labor costs reflect the net effect of changes in worker compensation and changes in worker productivity. Labor is usually the single largest component of production costs. A sustained rise in unit labor costs will cause an upward shift in a firm's average and marginal cost curves.

Review other EconData for this subject, or visit additional resources:

• EconNews
• EconLinks

All else equal a rise in unit labor cost will reduce profitability, while a fall in unit labor cost will increase profitability.

Review other EconData for this subject, or visit additional resources:

• EconNews
• EconLinks

Labor markets help determine one of the most important factors in labor cost per unit of output- wage and benefit costs. In a particularly tight labor market, such as when unemployment rates fall far below those usually associated with full employment, wages and benefits can rise faster than labor productivity, causing unit labor costs to rise. Rising unit labor costs reduce profits and put pressure on prices.

Review other EconData for this subject, or visit additional resources:

• EconDebates
• EconNews
• EconLinks

Changes in unit labor costs reflect the net effect of changes in worker compensation and changes in worker productivity. Thus the economic growth created by gains in labor productivity can be shared with workers without increasing unit labor costs and creating inflationary pressures.

Review other EconData for this subject, or visit additional resources:

• EconDebates
• EconNews
• EconLinks

Gains in labor productivity are economically beneficial because they increase output, and can allow worker incomes to rise while at the same time holding unit labor costs constant and limiting inflationary pressures.

Review other EconData for this subject, or visit additional resources:

• EconNews
• EconLinks

Rising unit labor costs pressure firms to raise prices, which can trigger accelerating inflation. Because unit labor cost reflects the net effect of changes in worker compensation and labor productivity, it is considered a more important inflation indicator than either compensation or productivity alone.

Review other EconData for this subject, or visit additional resources:

• EconDebates
• EconNews
• EconLinks

If unit labor costs rise in one country at a faster rate than its trading partners, that country may find its manufacturing output to be increasingly priced out of world markets. The resulting trade imbalance can put downward pressure on the country's currency, which in turn will create domestic inflationary pressure by raising the cost of imports.

Review other EconData for this subject, or visit additional resources:

• EconDebates
• EconNews
• EconLinks