ICS Commentary - U.S. Employment Cost Index, Q2 2011

ICS interprets latest BLS compensation index
Cornell University, ILR School: ICS - US Employment Index Q2 2011
Tuesday, August 2, 2011

Unemployment continues to hover around 9 percent and yet employment costs in the US hit their highest 12-month increase since 2008. "There are many recovery signals in these data” says Linda Barrington, ICS Managing Director, “but the signaling is saying steady-as-she-goes more than full-steam-ahead.” And the recovery signals are limited to the private sector, she warns.

While year-on-year total compensation cost increases in the private sector are demonstrating some recovery, state and local employees continue in a recessionary-like trough. For the five year period Q1 2005 through Q1 2010, the 12-month percent increase in total compensation costs for state and local government employees exceeded that for private sector employees. But for the past five quarters, increases for private sector employees have been higher.

The recent acceleration in private sector employment costs is mostly a story about benefits. This quarter’s acceleration in the 12-month percent change in benefit costs is steep, increasing to 4.0 percent from 3.0 percent for the 12-month period ending March 2011. Not since the end of 2005 has a 12-month increase in private sector benefit costs been this large. Private sector health care benefit costs actually rose more slowly over the past year than benefit costs overall. This has not happened since the late 1990s.

The relatively higher growth of non-health benefit costs may in part be explained (1) by average weekly overtime hours, which have been rising since their low in the first half of 2009; and (2) reinstatement of benefits that were cut during the worst of the recession such as contributions to defined contribution plans and paid leave, for which there is some anecdotal evidence. These actions are consistent with economic recovery.

See all ICS Commentary on Employment Cost Index.