Latest Employment Cost Index: Benefits Outstrip Wages

Wages and salaries rose in the fourth quarter of 2011, but benefits increased even more, according to Tuesday’s release of the Employment Cost Index by the Bureau of Labor Statistics. Compensation as a whole increased by 0.4 percent for civilian workers, seasonally adjusted, for the period. Wages and salaries, which constitute 70 percent of compensation, rose 0.4 percent, but benefits (the other 30 percent) gained 0.6 percent  at the same time.

The same figures for the third quarter were 0.3 for compensation, 0.3 for wages and salaries, and 0.1 percent for benefits, respectively; wages and salaries therefore increased modestly in the fourth quarter, but benefits rose noticeably from 0.1 to 0.6 percent. This pattern held in private industry, with benefits outgaining wages and salaries (0.1 to 0.7 percent), but compensation for workers in state and local government rose 0.3 percent both in wages and in benefits.

From December 2010 to 2011, the year to year compensation increase was 2.0 percent. Broken down, wages and salaries rose 1.4 percent and benefits increased 3.2 percent. This pattern held with civilian workers, and with state and local government as well, with benefits for the latter group also outpacing wages when the year to year numbers are compared.

The difference in benefits costs increases over wages and salaries in the fourth quarter could be explained better by employers upgrading more part time employees to full time, rather than benefits packages given to new employees. The revised national unemployment rate fell from 8.9 percent in September to 8.5 for December. This was a drop but not enough to fully explain the disproportional increase in benefits for that period as indicative of new employees.

According to theory, a new employee is hired when the value the person will contribute to revenue exceeds the total cost of employing the person. That is all easy to say, but predicting the two figures while an economy is coming out of a recession is a very different thing, and far harder for employers to do. A contributing cause to the difficulty is uncertainty as to the productivity of new employees, and unforeseen changes in taxes and mandated changes in benefits packages.