Employee Costs and Value Added

By Andrew Paparozzi
In July 9, 2009

According to the most recent data from the Bureau of Economic Analysis (BEA), compensation of employees represented more than half 57.6% of gross domestic income In the first quarter of 2009—the other side of the ledger from the government’s more publicized gross domestic product (GDP) data. However, note that a measure of output for the overall economy is essentially a summation of the value added of all industries and government not a summation of their individual output. The latter would entail a significant degree of double counting as one industry’s output can represent another’s input. Thus, a comparable measure on an industry basis would be compensation of employees as a share of that industry’s value added.

The latest comprehensive industry data from the BEA are for 2007 and show that the compensation of employees as a share of value added for all industries averaged 56.6%. Of course, there is wide variation from industry to industry, as some are more labor intensive than others. For example, the share for overall manufacturing was at 60% while it was just 26% for the overall financial sector. For print and support activities, compensation of employees as a share of value added was 71%. Our industry clearly remains highly labor intense.

Regardless of the industry, employee costs represent a major portion of a company’s cost structure. Because of the widely publicized debate on health care reform, much of the discussion on employee costs today revolves around health care benefits. They represent a major concern, especially for small companies. The last time we asked printers what concerned them most, rising wages/benefits was in the top 5. We are once again asking the question in our 2009 State of the Industry Survey, and while it may be overshadowed by other concerns, most likely it will remain a top concern. In any event, controlling labor costs remains a top priority, but controlling doesn’t just mean cutting. “Making labor more of a variable cost and less of a fixed cost,” is a lesson many of our survey participants indicated they have learned from the current recession. For a more complete discussion of this and other lessons learned, download the NAPL Executive Brief, Finding Opportunity in the Recession. How much value added are you creating from each factory payroll dollar? It’s one of the key measures in NAPL’s Performance Indicators program and it’s one that you constantly need to be aware of. See the Metric Tip dated 04/06/09, “The Value of Value Added.”

Andrew Paparozzi        Joseph Vincenzino        Kong Lue Wang

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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