U.S. EMPLOYMENT COST INDEX, Q4 2025 COMMENTARY
2025 Fourth Quarter Summary – Further softening in compensation cost growth, though margin above general inflation widens slightly
Continuing its downward trend begun in March 2023, the 12-month growth rate of the U.S. Bureau of Labor Statistics (BLS) Employment Cost Index (ECI), released on February 10, 2026, declined another tenth of a percentage point to 3.4 percent. Importantly, the Consumer Price Index for All Urban Consumers (CPI-U) increased just 2.7 percent over the same 12 months. As a result, the gap between the two has widened to 0.7 percentage points, an increase from 0.5 percentage points in Q3 (Chart 1, Table 1).
Chart 1 Employment Cost Index for Total Compensation for All Civilian Workers, 12-month Percent Change
See Chart 1 Data for Employment Cost Index for Total Compensation for All Civilian Workers, 12-month Percent Change.
Table 1 Employment Cost Index 12-month % Change, Not Seasonally Adjusted, for All Civilian Workers
See Table 1 Data for employment compensation index 12-month% change in total compensation, wages and salaries, and total benefits for all civilian workers (not seasonally adjusted).
Wages and Salaries versus Total Benefits
The employer cost index for employee benefits rose slightly more (3.4 percent) than costs for wages and salaries (3.3 percent). Throughout 2025, these two components of employer costs have tracked each other closely. This pattern is not typical. Such sustained tight convergence most recently occurred in 2017-2018 and 2006-2008 (Chart 2).
Chart 2 Employment Cost Index for Wages and Salaries and Total Benefits for All Civilian Workers, 12-month Percent Change
See Chart 2 Data for Employment Cost Index for Wages and Salaries and Total Benefits for All Civilian Workers, 12-month Percent Change.
Union/Nonunion and Government Sector Differences
Compensation for the unionized workforce continues recovery from its high-increase post-Covid adjustment period. The 12-month ECI for unionized workforce wages and salaries declined from 4.8 percent to 4.3 percent, and that for total benefits slowed from 3.9 percent to 3.6 percent (Chart 3). Separating the private industry workforce from state and local government reveals a similar, yet steeper, pattern of adjustment. In Q4 of 2025, the 12-month wage and salary ECI was the same for the private sector as for state and local government, 3.3 percent, and the cost to state and local governments for employee benefits rose just 3.5 percent over the past 12 months (Chart 4).
Chart 3 Employment Cost Index for Wages and Salaries and Total Benefits by Union Membership for All Civilian Workers, 12-month Percent Change
See Chart 3 Data for Employment Cost Index for Wages and Salaries and Total Benefits by Union Membership for All Civilian Workers, 12-month Percent Change.
Chart 4 Employment Cost Index for Wages and Salaries and Total Benefits by Government and Private Industries for All Civilian Workers, 12-month Percent Change
See Chart 4 Data for Employment Cost Index for Wages and Salaries and Total Benefits by Government and Private Industries for All Civilian Workers, 12-month Percent Change.
Total and Healthcare Benefits
Dramatic acceleration continues in the growth rate for the cost of employer-provided health insurance for private industry workers. For the twelve months ending in December, private sector health insurance costs rose 6.4 percent, furthering the trend of a 20-year high (Chart 5). In all likelihood, employers will look toward additional employee cost sharing of these rapidly rising costs.
Chart 5 Employment Cost Index for Total Benefits and Health Insurance for All Private Industries Workers, 12-month Percent Change
See Chart 5 Data for Employment Cost Index for Total Benefits and Health Insurance for All Private Industries Workers, 12-month Percent Change.
Data Notes: The Employment Cost Index (ECI) is produced by the U.S. Bureau of Labor Statistics to measure trends in the costs of compensation paid by employers to their employees, free from the influence of employment shifts among occupations and industries. The ECI is one of the labor market indicators used by the Federal Reserve Board to monitor the effects of fiscal and monetary policies and is released quarterly with a one-month lag.
Data for the Q4 2025 reference period (the 3-months ending in December 2025) were collected from a probability sample of approximately 28,700 occupational observations selected from a sample of about 6,700 private industry establishments and approximately 7,300 occupational observations selected from a sample of about 1,400 state and local government establishments that provided data at the initial interview.
Link to most recent ECI release: https://www.bls.gov/news.release/pdf/eci.pdf.
The Institute for Compensation Studies (ICS) at Cornell University’s ILR School is an interdisciplinary center that researches, teaches and communicates about monetary and non-monetary rewards from work, and how these rewards influence outcomes for individuals, companies, industries, and economies. At the crossroads between scholarship and practice, ICS is an exchange dedicated to helping new knowledge hit its mark in the world of work.
Contact:
Erica L. Groshen
Senior Economics Advisor
Institute for Compensation Studies
Authors:
Linda Barrington, Cornell SC Johnson College of Business
Seung-Hun Chung, Yale University
Erica L. Groshen, Cornell University – ILR School
The Institute for Compensation Studies
