Labor Cost and Profitability: An Analysis of North West Italy

The paper deals with Labor Cost in SMEs (Small and Medium size enterprises) and investigates its role of key success factor in enterprise performances. A better understanding of the labor cost variable is crucial in these companies, as SMEs account for more of 90% of the economic fabric both in Italy and in the rest of the European Union. Moreover, Labor and occupation have a major social impact in our society that triggers the close attention of politics: work is one of the primary means people have to reach self-fulfillment and to guarantee to the families a respectable lifestyle. Starting from these assumptions, this paper has three main purposes. First, we describe northwest of Italy (Piedmont, Lombardy, Ligure and Aosta Valley) in terms of SMEs and we set the database for our analyses including variables such as economic dimensions and main financial indicators (revenue, R.O.E. total labor cost, labor cost per employee, economic result). We made this choice since we wanted to investigate this very important area of Italy which is part of the “economic engine” of the Country. Second, we want to analyze and compare small versus medium sized enterprise in order to draw some conclusion and highlight similar trend. Lastly, the final part of the paper focuses on the correlation between labor costs and profits: we verify if (and to what extent) a rise in labor cost leads to an increase in the economic performance of the SMEs.