Tuesday, 26 of September of 2017

Economics. Explained.  

Employment Cost Index

July 28, 2017

The employment cost index for civilian workers rose at a 2.2% annual rate in the second quarter after having climbed at a 3.1% annual rate in the first quarter.  Over the course of the past year it has risen 2.4%.  Thus, the labor market is slowly beginning to get tighter, and to attract the workers that they want employers are having to work employees longer hours, and offer higher wages and/or more attractive benefits packages.

With the unemployment rate at 4.0% and full employment also presumably at 5.0%, it is not surprising that we are beginning to see a hint of upward pressure on compensation.

Wages climbed at a 2.2% rate in the second quarter after having risen at a 3.2% rate in the first quarter.  Over the course of the past year wages have been rising  at a 2.3% pace.  Wage pressures are beginning to accelerate gradually.

Benefits climbed at a 2.4% rate in the second quarter after having risen 2.7% pace in the first quarter.   As a result, the yearly increase in benefits is now 2.4%.

What happens to labor costs is important, but what we really want to know is how those labor costs compare to the gains in productivity.  If I pay you 3.0% more money but you are 3.0% more productive, I really don’t care.  In that case, unit labor costs were unchanged.

Currently, unit labor costs  have risen 1.1% in the past year as compensation rose 2.3% while productivity increased by 1.2%.   Such an increase in ULC’s is consistent with an inflation rate roughly in line with the Fed’s desired target rate of 2.0%.

Stephen Slifer


Charleston, SC

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