ICS Commentary - U.S. Employment Cost Index, Q2 2010

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Cornell university, ILR School: ICS - ICS Commentary - U.S. Employment Cost Index, Q2 2010, August 5, 2010
Thursday, August 5, 2010

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NEWS RELEASE: Wednesday, August 4, 2010

Media Contact: Mary Catt, 607-255-7495 or mc834@cornell.edu

Benefits Explain Why Employers’ Costs Rise, But Employees Might Feel Worse Off: Director of Cornell’s Institute for Compensation Studies™

Recent economic reports on compensation by the Bureau of Labor Statistics and the Bureau of Economic Analysis might appear contradictory, but such potentially mixed signals are expected at this point in a business cycle, according to Kevin Hallock, director of Cornell University’s new Institute for Compensation Studies™.

“For employers, labor costs are going up, while many employees are seeing flat or even falling wages and salaries,” he said. Both are happening simultaneously, Hallock said, explaining that “while salaries are being squeezed, the cost to employers of providing benefits is rising.”

Slight decreases in June’s wage and salary disbursements for the private and government sectors (down $5.2 billion and $0.6 billion, respectively) were reported widely following the release of Bureau of Economic Analysis report yesterday. According to Employment Cost Index released last week by the Bureau of Labor Statistics, however, the 12-month percent increase in wage and salary costs for private industry workers has edged up over the first two quarters of 2010, with employer costs for benefits rising much more sharply.

The latest data show health benefits alone rose five percent for the twelve months ending in June. (Nationally, wages and salaries comprise 70 percent of the total cost of employee compensation, with benefits comprising the 30 percent balance.)

Part of Cornell’s ILR School, the Institute for Compensation Studies™ has been established to advance discourse and decision making on compensation in the workplace. Institute Managing Director Linda Barrington said, “As the global labor market struggles to recover, it’s more important than ever to engage in thoughtful discourse about how monetary and non-monetary rewards for work interact with business competitiveness, employee engagement and macroeconomic growth.”

The institute is aligned with other institutes and centers within Cornell and more than 40 research fellows around the globe. “These are complicated issues that can only be effectively addressed by bringing multiple perspectives and wide ranging expertise to the discussion,” Barrington said.

Referring to latest Employment Cost Index statistics, Hallock observed that for the first time since the end of 2006, total compensation costs in the private sector have posted increasing gains for two consecutive quarters. Hallock commented, “The second quarter of 2010 was also the first time since 2004 that gains in total compensation in the private sector overtook those in the public sector.”

But, private sector employees still won’t see much in the way of direct cash gains in their wallets, Hallock said, “as more of this increase is driven by increasing benefits’ costs -- especially health care -- than by wage and salary increases.”

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About the Institute for Compensation Studies™(www.ilr.cornell.edu/ics.)

The Institute for Compensation Studies™ at Cornell University’s ILR School considers all forms of compensation across the world and across the span of organizational control – from boards of directors and executives to entry-level and contract workers, in for-profit and nonprofit organizations.

Established in July 2010, it will serve professionals, students, academics and decision makers as a global incubator and clearinghouse for new insights, data, teaching and research. It will also provide periodic perspectives on labor market indicators and related data associated with compensation.

The institute’s director is Kevin F. Hallock, chairman and professor of the Department of Labor Economics at Cornell’s ILR School. His research has been supported by the U.S. Department of Education, the U.S. Department of Labor, the National Bureau of Economic Research and the Alfred P. Sloan Foundation.

Hallock’s current projects include research on executive and board compensation, wage differentials and a new book on compensation design.

The institute’s managing director is Linda Barrington. Formerly of The Conference Board and Barnard College of Columbia University, Barrington was recently recruited to support the institute’s growth, and maintains research interests in issues related to business leaders’ top challenges, new work force entrants, and economic advancement for underrepresented populations.