Company Profitability and Labour Intensity under Different Phases of the Economic Cycle: A Pan-European Empirical Study

Our paper seeks to investigate the relationship between company profitability and labour intensity in 17 European Union (EU) member states in the comparative perspective of Central and Eastern Europe (CEE) and Western Europe (WE). Our study is based on the 2001 to 2009 data of 93,500 companies from the Amadeus database. We find that companies with higher labour intensity tend to operate with higher EBITDA margins, potentially the effect of their larger flexibility to changes in demand and overall economic conditions. However, we find that companies with higher labour intensity have lost relatively more in their profitability during the 2008-2009 economic crisis. This may relate to potentially large redundancy costs of labour intensive companies under a need to decrease workforce as a result of lower activity levels. Another explanation might be that salaries as well as staff numbers did not react to the economic crisis as quickly as other costs and companies' profits did.