Wage/Benefits Inflation Still Comparatively High

The government's comprehensive Employment Cost Index (ECI), which measures changes in wages, salaries, and employer costs for employee benefits, increased by 0.8% during the third quarter of 2002. This was down a bit from the 1.0% increase recorded during the second quarter of last year.

The latest ECI survey provided evidence that the higher unemployment rate and paltry growth in total jobs throughout the U.S. economy is dampening average wage gains. Following an increase of a full 1.0% between the first and second quarters of last year, wages and salaries increased at an average rate of only 0.5% during the third quarter of 2002.

Benefit costs continue to rise at a much faster rate than direct (wage and salary) costs. Sharply higher health insurance and workers' compensation costs were instrumental in pushing up overall benefit costs measured in the ECI by 1.4% during Q3 2002. This represented the 13th consecutive quarter that inflation in benefit costs exceeded inflation in basic wages and salaries.

Compared to a year earlier, September 2002 benefit costs to employers were up a steep 4.9%, while costs for direct compensation rose by a more moderate 3.2%—the lowest over-the-year increase recorded since 1995. The overall (i.e. total compensation) September 2002 ECI was 3.7% higher than in September 2001.