Employer Cost Inflation Is Comparatively High

The government's comprehensive "Employment Cost Index" (ECI)—which measures changes in wages, salaries, and employer costs for employee benefits—increased by 1.0% during the second quarter of 2002. This was up slightly from the 0.8% increase recorded during the first three months of this year.

Even with the nation's unemployment rate being at its highest level in four years, there are still many instances where skilled labor shortages in various in-demand occupations are pushing up average wages/salaries. The June 2002 ECI was 4.0% higher than in June 2001. Through the middle of this year, labor market inflation remained at a level more than double the rate of product price inflation.

Benefit costs continue to rise at a much faster rate than direct (wage and salary) costs. Sharply higher health insurance and workers' compensation costs pushed overall benefit costs measured in the ECI up 1.3% during Q2 2002—the 12th consecutive quarter that inflation in benefit costs exceeded inflation in basic wages and salaries. Compared to a year earlier, June 2002 benefit costs to employers were up a steep 5.0%, while costs for direct compensation rose by a more moderate 3.5%.