Commentary on the Employment Cost Index

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2021 Second Quarter: Annual compensation growth strengthens further, with largest increases for wages and salaries for private-sector workers in service occupations 

Civilian workers compensation costs 12-month growth rate of 2.9 percent growth per year matches the pre-pandemic growth  

Released July 30, 2021, the U.S. Bureau of Labor Statistics’ 12-month Employment Cost Index (ECI) in the first quarter of 2021 ticked up to 2.9 percent (Chart 1), the highest growth rate since Q4 2018. ECI growth had hovered between 2.7 and 2.9 percent for the 10 quarters (from Q1 2018 through Q2 2020) before the pandemic and decreased to 2.4 percent in September 2020. Prior to that, ECI growth accelerated steady between 2016 Q2 and 2017 Q4 as the labor market tightened. Yet, behind this relatively stable trend lies an unusually high degree of variation over the year and among groups. 

Chart 1

Figure shows the time trend in the ECI for total compensation among all civilian workers (12-month percent change). The series starts in Q1 2001 at 3.9 percent and ends in Q2 2021 at 2.9 percent.

2021 Q2 12-month ECI growth concentrated in the private sector, and less than recent inflation

Recent compensation increases have been concentrated in the private sector.  Government compensation cost growth has been declining as private compensation costs growth has increased. Wage and salary growth was 3.2 percent over the 12-month period, the highest rate since Q4 2008. At the same time, price inflation has been rising.  Thus, as of Q2 2021, 12-month increases in consumer prices were much higher than compensation costs increases, especially for government workers.  Thus, workers’ real earnings lost ground.  

Chart 2

Figure shows the time trend in the ECI for total compensation among all workers by class of worker (12-month percent change). The series starts in Q1 2016 and ends in Q2 2021. It plots the ECI time series for civilian workers, private workers, and public

Shading indicates recessionary periods. Prepared by Cornell Institute for Compensation StudiesTM
Data Source: US Bureau of Labor Statistics Employment Cost Index

Private sector compensation rises while public sector compensation growth is flat

Breaking total compensation into its key components of earnings (wages and salaries) and benefits, total benefits typically account for about 30 percent of employer costs for employee total compensation. Table 1 reports the ECI trends for each of these categories by public and private sector. The recent slower growth in compensation is due to slower wage and salary growth.  At 2.5 percent over the last 12 months, benefits growth exceeded the range between 2.1 to 2.3 percent that prevailed for seven quarters (since Q2 2019).  With the exception of only one quarter –Q2 2017—earnings have been growing faster than benefits since Q2 2015. 

The table also shows that public and private sector compensation components moved quite differently over the past year.  Public sector compensation costs slowed more during the pandemic than private sector compensation and have yet to show recovery.

In the private sector, comparing the 12 months ending in June 2020 with the 12 months ending in June 2021, we see a notable pick-up in wage and salary growth (from 2.9 percent from 3.5 percent—the highest growth rate since March 2007) while benefits costs growth were unchanged at 2.0 percent. 

By contrast, both components of public sector compensation grew much more slowly in the recent period.  Comparing the 12 months ending in June for 2020 and 2021, wage and salary growth declined from 2.6 percent to 1.5 percent and benefits cost growth slowed from 3.1 percent to 2.6 percent.

Table 1

Major series of the Employment Cost Index [Percent change]

 

Category

12-month, not seasonally adjusted

Jun.
2020

Sep.
2020

Dec.
2020

Mar.
2021

Jun.
2021

Civilian workers (1)

    Compensation (2)

2.7

2.4

2.5

2.6

2.9

    Wages and salaries

2.9

2.5

2.6

2.7

3.2

    Benefits

2.2

2.3

2.1

2.5

2.2

Private industry

    Compensation (2)

2.7

2.4

2.6

2.8

3.1

    Wages and salaries

2.9

2.7

2.8

3.0

3.5

    Benefits

2.0

2.0

2.1

2.5

2.0

State and local government

    Compensation (2)

2.7

2.3

2.3

2.0

2.0

    Wages and salaries

2.6

1.8

1.8

1.6

1.5

    Benefits

3.1

3.2

3.1

2.6

2.6

             

Footnotes
(1) Includes private industry and state and local government.
(2) Includes wages and salaries and benefits.

Prepared by Cornell Institute for Compensation StudiesTM
Data Source: BLS (ECI Historical Listing, July 30, 2021)

Private sector 12-month compensation growth varies widely by occupation

Private sector compensation growth varied strongly among occupational groups (see Chart 3), likely reflecting a high degree of pandemic-related flux in labor supply and demand conditions.  Indeed, the standard deviation of growth rates by major occupational group is the highest since this series began in 2001. Over the last 12 months, earnings grew slowest (2.4 percent) for professional and managerial occupations and twice as fast for service occupations (4.8 percent).     

Chart 3

Figure shows the time trend in the ECI for total compensation among private workers by worker occupation (12-month percent change). The series starts in Q1 2001 and ends in Q2 2021. It plots the ECI time series for all workers, management, service, sales

Shading indicates recessionary periods. Prepared by Cornell Institute for Compensation StudiesTM
Data Source: US Bureau of Labor Statistics Employment Cost Index

The Employment Cost Index (ECI) released July 30, 2021 by the U.S. Bureau of Labor Statistics reflects trends in the costs to employers for the total compensation, wages, and benefits they provide to their workers, controlling for composition of the workforce. 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. The BLS summary can be found at https://www.bls.gov/news.release/eci.nr0.htm.

See all prior commentaries
2021  
First Quarter of 2021 (PDF, 553 KB)

Annual compensation growth recovers further from pandemic effects 

2020  
Fourth Quarter of 2020 (PDF, 553 KB)

Slow annual compensation growth reflective of softer labor market conditions

First Quarter of 2020 (PDF, 405 KB)

Annual compensation growth remains steady despite worsening labor market conditions at end of quarter

2019  
Third Quarter of 2019 (PDF, 756 KB)

Annual compensation growth strengthens, breaking pattern of softening growth over the last two quarters

Second Quarter of 2019 

With unemployment rate steady, year-on-year compensation growth softens

2014  
First Quarter of 2014 ECI for Leisure and Hospitality Industry reaches post-recession record high
Second Quarter of 2014 At 2.0%, 12-month ECI continues four-plus year steady pace
2013  
Third Quarter 2013 (PDF, 425 KB) Higher growth in private sector wages/salaries and in the West
Second Quarter of 2013 Annual growth in compensation costs, steady at 1.9%
2012  
Third Quarter of 2012 ECI aligns with "Jobs Report" in signaling steadily strengthening employment picture
Second Quarter of 2012 12-month percent change in private sector benefit costs drops precipitously
First Quarter of 2012 ECI essentially flat with increases reported throughout 2010 and 2011
2011  
Fourth Quarter of 2011 Compensation cost increases continuing in a solid "holding Pattern"
Third Quarter of 2011 Q3 employment cost index dips
Second Quarter of 2011 Employment cost index highest since 2008
First Quarter of 2011 Steady, slow currents in U.S. labor market waters
2010  
Fourth Quarter of 2010 Labor costs inching up, but not enough to chill hiring: Cornell expert
Third Quarter of 2010 Q3 provides further evidence of a soft, but non-recessionary private-sector labor market
Second Quarter of 2010 Benefits Explain Why Employers’ Costs Rise, But Employees Might Feel Worse Off