The Employment Cost Index (ECI) measures the change in the cost of labor, free from the influence of the level of employment and shifts among occupations and industries. Data are collected from a large sample of wage earners across both private and government sector employers. The index provides quarterly data on wages, bonuses and benefits, and also breaks out union and non-union workers. The ECI is therefore an excellent measure of overall employment costs, particularly since the cost of benefits including health insurance and pensions have become a larger part of employee compensation.
According to the BLS, the overall cost of compensation for civilian workers increased by 0.4 percent over the past 3 months (July – September), following a 0.5 percent increase in the prior quarter. Wages and salaries (which make up about 70 percent of compensation costs) increased at a slightly slower rate, while benefits increased 0.7 percent over the quarter. As such, benefits continue to grow as a percentage of overall income, reflecting mainly higher health care expenses.
The ECI for private sector workers is up slightly more than for their counterparts in government. Wages and salaries increased 1.8 percent for the year ending in September 2013, while the cost of benefits was up 2.0 percent (with health benefit costs up by 2.7 percent). For government workers, overall compensation costs were up 1.7 percent over the year, with wages and salaries up 0.9 percent and benefit costs up 2.9 percent.
Overall wages and benefits are up moderately across industry categories, however, utilities workers, and those working in hospitality and parts of the health care sector had slightly lower increases. Interestingly, non-union manufacturing workers have fared better than their union counterparts over the past 12 months, while service workers in unions have had higher overall compensation increases than non-union service employees.
Also, compensation rose slightly faster in the south and west than in the northeast and Midwestern regions.
The ECI points out the same thing that the PPI and Consumer Confidence Index (below) have revealed, that is that while inflation is tame, this is coming at the expense of workers. Over the past 12 months, the CPI has risen by 1.2 percent, while wages were up just 1.8 percent. This means that real income is up by just 0.6 percent over the year – close enough to zero to be virtually flat. Since the overall economy is growing by around 2 or 2.3 percent in real terms, workers are falling behind relative to owners of capital and land, suggesting that the vast majority of people are falling behind. This is reflected in poor retail sales, low consumer confidence and an overall feeling of economic malaise.
It is unlikely that corporate profits will continue to increase at the rates that they have been, particularly when the cost of capital turns from negative to positive. Once corporations no longer have free money to use to buy back stock and pay dividends, they will have to generate returns from increased production. This will begin to drive up wages and overall compensation, and will hopefully start driving employment as well. This suggests some improvement in the economy over 2014 and 2015.