Commentary on the Employment Cost Index

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2021 First Quarter: Annual compensation growth recovers further from pandemic effects 

Civilian workers compensation costs 12-month growth rate of 2.6 percent growth per year approaches pre-pandemic trend  

Released April 30, 2021, the U.S. Bureau of Labor Statistics’ 12-month Employment Cost Index (ECI) in the first quarter of 2021 ticked up to 2.6 percent (Chart 1). 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 across occupations. 

Chart 1

Chart showing time series of the employment cost index for total compensation for all civilian workers at a 12-month percent change. The series starts at 3.9 percent in 2001 Q1 and fluctuates to 2.6 in 2021 Q1. Shaded areas indicated recession periods.

Comparison of 2021 Q1 ECI with average weekly earnings shows impact of lost low wage jobs

The recent behavior of ECI highlights the importance of its controls for workforce composition.  Looking at the growth of ECI of private sector workers since 2007, we see that ECI earnings usually move apace with the annual growth rate of average weekly earnings (AWE) of private sector workers from the BLS Current Employment Statistics (CES) program (also known as the “Payroll Survey”). The Great Recession (2007-2009), saw a steep decline in both growth rates. Our current labor market crisis is markedly different in that mandated shutdowns and precautionary consumer behavior caused a sudden and historically large loss of jobs for particular workers at particular employers.  Although payroll jobs have recovered more than half of their losses since April 2020, total payrolls jobs are still down about 8.4 million since February 2020.  And many workers have had their hours reduced.

The affected workers are disproportionately low-wage workers, which raises the average wage of those workers still employed. In stark contrast, the ECI’s controls for workforce composition reveal that the pace of compensation growth has not increased dramatically (to over 6 percent per year as AWE suggests), but instead slowed modestly during the pandemic. 

Chart 2

 Chart showing time series of the average weekly earnings, ECI total compensation, and ECI wages and salaries. Series highlights the increase in weekly earnings since 2020.

Shading indicates recessionary periods.

Retrieved from FRED, Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/graph/?g=Dzav

Data sources: U.S. Bureau of Labor Statistics, Employment Cost Index and Current Employment Statistics.

Private sector compensation rises slightly while public sector compensation growth slows

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 took a much larger hit from the pandemic than private sector compensation.

In the private sector, comparing the 12 months ending in March 2020 with the 12 months ending in March 2021, we see slower growth in wages and salaries (down to 3.0 percent from 3.3 percent) offsetting a rise in benefits costs (up from to 2.1 percent to 2.5 percent).  Both components rose faster than the rate of inflation in the Consumer Price Index (CPI) over the past 12 months.

By contrast, both components of public sector compensation grew much more slowly in the recent period.  Comparing the 12 months ending in March for 2020 and 2021, wage and salary growth declined from 2.8 percent to 2.0 percent and benefits cost growth slowed from 3.3 percent to 2.6 percent. Indeed, comparison with the CPI shows that public sector workers saw almost no growth in their real compensation over the past 12 months.

Table 1

Major series of the Employment Cost Index [Percent change]

 

Category

12-month, not seasonally adjusted

Mar.
2020

Jun.
2020

Sep.
2020

Dec.
2020

Mar.
2021

Civilian workers (1)

    Compensation (2)

2.8

2.7

2.4

2.5

2.6

    Wages and salaries

3.1

2.9

2.5

2.6

2.7

    Benefits

2.1

2.2

2.3

2.3

2.5

Private industry

    Compensation (2)

2.8

2.7

2.4

2.6

2.8

    Wages and salaries

3.3

2.9

2.7

2.8

3.0

    Benefits

1.6

2.0

2.0

2.1

2.5

State and local government

    Compensation (2)

2.8

2.7

2.3

2.3

2.0

    Wages and salaries

2.7

2.6

1.8

1.8

1.6

    Benefits

3.3

3.1

3.2

3.1

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, April 30, 2021)

Chart 3

Chart showing time series of the employment cost index for total compensation for all workers at a 12-month percent change.

Shading indicates recessionary periods.

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

Private sector 12-month wage and salary growth varies widely by occupation

Private sector earnings growth varied strongly among occupational groups (see Chart 4), 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 (1.8 percent) for professional and managerial occupations and more than twice as fast for service occupations (4.3 percent) and sales and office occupations (4.4 percent).  Among the subgroups reported by BLS, the subgroup showing the highest growth rate is sales and related occupations (6.2 percent).  Two subgroups with the slowest growth rates (both at 1.6 percent) were managerial, business & financial occupations and construction, extraction, farming, fishing & forestry occupations.   

Chart 4

Chart showing time series of the employment cost index for wages and salaries for all private workers by occupational grouping at a 12-month percent change.

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 April 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
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