2013 Third Quarter

• Total compensation ECI continuing its post-recession 2 percent trend for all workers.  

• Despite its higher unemployment rate, the West is experiencing more rapidly rising wage and salary costs.  

Civilian workers costing employers 2.0 percent more than a year ago. 

The cost of U.S. employees’ wages, salaries and benefits rose by 2.0 percent over the previous 12 months, according to the latest Employment Cost Index released January 31st by the U.S. Bureau of Labor Statistics (Chart 1). 

Chart 1 

This small increase in the ECI is noteworthy in that it is the first acceleration in the compensation inflation measure since September 2012. That said, the 12-month total compensation ECI has not  been consistently above two percent since the end of 2008. In contrast, note that for the five and a half years between the end of the 2001 recession and the start of the Great Recession, the 12-month ECI  never dropped below 2.8 percent (Q1, 2006) and registered 3.5 percent or higher for 13 of 23 quarters.  

The general price inflation experienced by urban consumers (December 2013, revised) is 1.5 percent (annual CPI-U)1

BLS, CPI-U, U.S. City Average, All Items, 12-month change from December 2012 to December 2013, NSA,  http://www.bls.gov/cpi/

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On average, employer-provided benefits compose roughly 30 percent of the total compensation costs of employees, with wages and salaries composing the remaining 70 percent. This quarter’s  0.1 percentage point increase in the 12-month ECI for total compensation is driven entirely by  increasing growth in wages and salaries, which reached a nineteen-quarter high of 1.9 percent (Table 1).  

Table 1 

In government sector, benefit costs continue to rise more than 3.0 percent annually 

Total compensation costs for employers in the public sector (state and local government) have  risen 1.9 percent above where they were 12 months ago, maintaining a steady (albeit gentle) upward two-year trend. The annual inflation rate of wages and salaries of government employees  increased slightly to 1.1 percent, up from 0.9 percent last quarter. The growth in benefits  rebounded to 3.3 percent, not sufficient, however, to surpass the post-recession highpoint of 3.5  percent reached in the first quarter of 2013. Prior to the Great Recession, the annual inflation rate  of benefits for government employees averaged 6.1 percent and never dipped below 4.6 percent  from Q1 2002 through Q3 2007. (Chart 2).  

Chart 2 

For private sector employers, slower growth in benefits costs 

For private sector employees, the difference between the 12-month ECI for total  compensation and that for wages and salaries remains fairly negligible. The inflation rate for  wages and salaries rose to 2.1 percent, the first quarter since the Great Recession that  reported an annual inflation rate of wages and salaries above 2.0 percent. The increase in the  private sector 12-month ECI for wages and salaries was somewhat offset by a slight slowing  in the rise of employers costs for employee benefits (from 2.0 to 1.9 percent). (Chart 3). On net, employer costs of total compensation for private sector employees pushed back up to a  growth rate of 2.0 percent. 

Chart 3 

Large Changes in Regional Employer Cost Index for Wages/Salaries in West 

Since the fourth quarter of 2012, the accelerating rate of wage and salary cost increases for private  sector employers in the West2 stands out, surpassing all other regions. (Chart 4). The West’s  annual inflation rate for wages and salaries of 2.4 percent is the highest that it’s been since the  fourth quarter of 2008. This, despite the West’s comparatively worse unemployment trend and  current rate of 7.4 percent in December 2013 (Chart 5). 

Chart 4 

Chart 5 

About the Employment Cost Index (ECI) Series 

The Office of Compensation Levels and Trends of the U.S. Bureau of Labor Statistics (BLS) produces the Employment  Cost Index (ECI) Series. It is designated as a Principal Federal Economic Indicator by the Office of Management and  Budget. It is the only measure of labor costs that treats wages and salaries and total compensation consistently and that  provides consistent subseries by occupation and industry. The ECI is used by the Federal Reserve Board to monitor the  effects of fiscal and monetary policies and to formulate those policies. It enables analysts and policymakers to assess the  effects of labor cost changes on the economy, both in the aggregate and by sectors. The ECI is particularly important in studies of the relationships among prices, productivity, labor costs, and employment. The ECI also is used to determine increases in Medicare payments to hospitals and doctors and as a labor cost escalator in long-term contracts. 

Data for the December 2013 reference period were collected from a probability sample of approximately 44,200  occupational observations selected from a sample of about 9,100 establishments in private industry and approximately  9,100 occupations from a sample of about 1,400 establishments in state and local governments. 

• 1
• 22 States included in the Census classification as the West include: Alaska, Arizona, California, Colorado, Hawaii,  Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming.