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Charts: 1. Coverage of the Employment Cost Index.. 2. Changes in total compensation, private industry and State and local governments, 1982-88... 3. Changes in wages and salaries and benefit costs, private industry, 1980-88 4. Changes in wages and salaries for union and nonunion workers, private industry, 1976-88 .. 5. Changes in wages and salaries for white-collar and blue-collar workers, private industry, 1976-88 ... 6. Changes in wages and salaries in goods and service-producing industries, private industry, 1976-88 7. Changes in current and constant-dollar wages and salaries, private industry, 1976-88 8. Components of employer costs for employee compensation, private industry, March 1988... 9. Employer costs for employee compensation by industry group, private industry, March 1988.. 10. Employer costs for employee compensation by occupational group, private industry, March 1988.
Text tables: 1. Percent changes in wages and salaries for occupational groups in private industry, selected periods, 1975-88 .. 2. Percent changes in wages and salaries by private industry group, June 1981-June 1988... the Consumer Price Index for All Urban Consumers, 1976-87 .. March 1987 and March 1988..
Total compensation costs per hour worked and benefits as a proportion of those costs, March 1988: 5. By private industry group 6. By occupational group, private industry. 7. By occupational group within industries. 8. By union status and occupational group
Reference tables: Employment Cost Index: Compensation costs: 1. Civilian workers by occupational and industry group, 1981-88..
Wages and salaries: 5. Civilian workers by occupational and industry group, 1981-88..
Benefit costs: 9. Benefits, private industry workers by occupational and industry group, 1979-88
Employer costs per hour worked for employee compensation and costs as a percent 10. Private industry workers by major industry category occupational group occupational group
March 1987: 17. Private industry workers by major industry category
Most economic analysis involves relationships between prices, productivity, employment, and labor costs. Adequate measures of the first three have existed for some time, but it was not until the development of the Employment Cost Index (ECI) that a comprehensive indicator of changes in total compensation became available. The ECI covers all occupations and establishments in both the private nonfarm sector and State and local government, permitting analysis of labor cost changes for a major portion of the U.S. economy.
Background. The ECI was developed in the early 1970's in response to an expressed need for a timely, accurate, and comprehensive indicator of changes in employers' labor costs, free from the influence of employment shifts among industries and occupations. The objective of measuring change unaffected by employment shifts was accomplished by holding the distribution of employment among industries and occupations fixed over time, and by defining the jobs for which data are collected each quarter narrowly enough so that all workers in the job carry out the same task at roughly the same level of skill. ECI statistics were first published in June 1976 and were limited to wage and salary data for 21 occupational and industry groups in the private nonfarm economy. Over the next 12 years, new series were gradually added. In 1980, for example, measures of total compensation cost changes (employer costs for employee benefits in addition to wages and salaries) were developed as the rapid growth of employee benefits made it no longer appropriate to define the cost of labor in terms of a wage rate alone. Rising employer payments for items such as health and life insurance, paid vacations, holidays, and Social Security increased the need for measures of total compensation costs. Employee benefits now constitute nearly 30 percent of total employer costs for employee compensation; the corresponding figure in 1966 was only 20 percent." Benefits covered by the ECI survey are: Paid leave (vacations, holidays, sick leave, and other paid leave); supplemental pay (premium pay for overtime and work on weekends and holidays, shift differentials, and nonproduction bonuses such as lump-sum payments provided in lieu of wage in
creases); insurance benefits (health, life, and sickness and accident); retirement and savings benefits (pension and other retirement plans and savings and thrift plans); legally required benefits (Social Security, railroad retirement and supplemental retirement, railroad unemployment insurance, Federal and State unemployment insurance, workers' compensation, and other legally required benefits such as State temporary disability insurance); and other benefits (severance pay, supplemental unemployment insurance, and merchandise discounts in department stores). In June 1981, the State and local government sector was added. The addition of State and local governments increased coverage to include all occupations and establishments in the civilian nonfarm economy (excluding the Federal Government and private household workers). By the June 1988 reference period, over 90 percent of all civilian wage and salary workers were covered. (See chart 1.) Measures of change in wages and salaries alone and in total compensation were published for over 200 series, including occupational, industrial, and geographic divisions, and by union status and area size. In addition, measures of change in benefit costs alone were available for specific occupational and industry series in the private sector. Beginning in 1987, a new measure based on data from the ECI survey-Employer Costs for Employee Compensationbecame available annually. These compensation costs per hour worked are calculated by applying current, rather than fixed, employment weights to wage and salary and benefit cost data collected from the establishments in the survey. The cost levels are obtained with no additional burden on respondents and are published once a year with a March reference period.
Uses and limitations. Analysts and policymakers, including the Federal Reserve Board, use the ECI to formulate monetary policies and to monitor the effects of those policies. The ECI is also used to forecast wage trends and facilitate wage and benefit cost planning. Another use is in collective bargaining in private industry and the public sector both as a wage escalator in union contracts and as a guide in negotiations. Several health cost containment laws, including one for Medicare, use the ECI as an adjustment factor to determine the allowable increases in hospital charges. In addition, the EcI is increasingly being used as a labor cost escalator in long-term purchasing and service contracts in both the private and public sectors.
' Employee Compensation in the Private Nonfarm Economy, 1966, BLS Bulletin 1627 (Bureau of Labor Statistics, 1969). This survey, Employer Expenditures for Employee Compensation, was discontinued after 1977. Data from the survey are not strictly comparable to those from the ECI survey.
The cost levels series is used by the U.S. Department of Labor in administering the Service Contract Act. The cost levels are also examined by employers who want to compare their own compensation costs with those of a broader group of employers. The costs for specific benefit categories such as insurance and Social Security are analyzed by government agencies and private organizations to determine the effect those costs have on employers and the economy. Like other statistical series, the ECI survey has limitations. Currently, it does not cover all employers and employees,
Chart 1. Coverage of the Employment Cost Index
Not covered (Federal Government, agriculture, households) 6.4%
Total civilian employment Page 3
Chapter II. Employment Cost Index: Trends in Compensation
The Employment Cost Index (ECI) for total compensation increased 42.1 percent from June 1981 to June 1988 for civilian (non-Federal) workers. In the June 1981-82 period, compensation costs increased 7.5 percent. In each of the next 5 years, the increases were smaller than in the year before. In the 12 months ended in June 1987, compensation costs rose 3.3 percent, the smallest increase in the 6-year period. Beginning with the 12-month period ending in September 1987, compensation cost increases began to accelerate. By June 1988, the 12-month increase was 4.6 percent. Complete historical data for all ECI series are presented in tables 1-9. The tables include data for civilian, private industry, and State and local government workers by occupational and industry group. In addition, the tables include data by geographic region, bargaining status, and area size for private industry workers.
Wages and salaries vs. benefits. In private industry during 1980-85, benefit costs generally rose more rapidly than wages and salaries. (See chart 3.) The two benefits primarily responsible for the large increases in benefit costs were Social Security and health insurance. The employers' Social Security tax rate was raised in most years, and health insurance costs rose steadily. During 1985-87, benefit costs in private industry rose at about the same pace as wages and salaries. This change in the pattern was brought about by a decline in contributions for retirement plans, cost containment measures affecting health insurance costs, and relatively small increases in the Social Security tax rate." In 1988, benefit costs once again increased at a higher rate than wages and salaries. This change in the pattern resulted from a 5-percent increase in the Social Security tax rate at the beginning of the year and a rise in employer payments for health insurance in the March and June quarters.
Private industry vs. State and local government. From June 1981 to June 1988, compensation costs rose more rapidly in State and local governments than in private industry. (See chart 2.) This pattern can be explained in part by the different occupational distributions of the two sectors. For example, professional specialty and technical occupations, which had above-average compensation gains in both private industry and State and local governments from June 1981 to June 1988, are more concentrated in State and local governments. These workers accounted for less than oneeighth of private industry employment, compared with over three-eighths of State and local government employment. The pattern of more rapid compensation cost increases in State and local governments can also be explained in part by the different industry distributions of the two sectors. For example, workers in service industries had above-average compensation gains in both private industry and State and local governments from June 1981 to June 1988. Nearly twothirds of State and local government employees were found in service industries, compared with about a quarter of private industry employees.
2 See Richard E. Schumann, “State and Local Government Pay Increases Outpace Five-Year Rise in Private Industry," Monthly Labor Review, February 1987, pp. 18-20. Schumann based his analysis on wage and salary changes.
3 See Bradley Braden, “Increases in Employer Costs for Employee Benefits Dampen Dramatically," Monthly Labor Review, July 1988, pp. 3-7.
Chart 2. Changes in total compensation, private industry and State and local governments, 1982-88
12-month percent change 10
12-month percent change 10
State and local government workers
Chart 3. Changes in wages and salaries and benefit costs, private industry, 1980-88 12-month 12-month percent change percent change 16 16
Chart 4. Changes in wages and salaries for
Chart 5. Changes in wages, and salaries for white-
Pay changes by industry group. During the 1980's, in private industry, pay has consistently risen faster in serviceproducing than in goods-producing industries. (See chart 6.) Average pay gains for the broad industry groups, however, mask wide differences among industries within these groups, as text table 2 shows.
From 1976 through 1987, the constant-dollar ECI was influenced more by what happened to prices than to wages. During the 1979-82 period, for example, when wages were rising most rapidly, the constant-dollar Eci declined; during 1982-86, the constant-dollar ECI rose despite much lower wage gains.s
4 The constant-dollar Eci is derived by putting the Consumer Price Index for All Urban Consumers (CPI-U) on June 1981 = 100 base, dividing the current-dollar Eci by the rebased CPI-U and multiplying the result by 100. For a discussion of movements in the constant-dollar ECI, see Richard E. Schumann, "Workers' Purchasing Power Rises Despite Slowdown in Wage and Salary Gains," Monthly Labor Review, May 1984, pp. 10-14.
Beginning with the index for January 1983, the method of pricing owneroccupied housing in the official CPI-U was changed from the asset price" approach to a rental equivalence approach. Prior to that time, an experimental CPI measure using the rental equivalence approach was available; that index did not rise as rapidly as the CPI-U over the 1976-82 period. The conclusions in this section are not, however, affected by which of the measures of price change is used. For a discussion of methods of pricing housing, see Problems in Measuring Consumer Prices, Report 697 (Bureau of Labor Statistics, 1983), appendix B.
Chart 6. Changes in wages and salaries in goods- and service-producing industries, private industry. 1976-88
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Table 1. Total compensation,' civilian workers:' Employment Cost Index by occupational and industry group, 1981-88
(Not seasonally adjusted)
Indexes (June 1981 = 100)
Table 1. Total compensation,' civilian workers: Employment Cost Index by occupational and industry group, 1981-88-Continued
Table 2. Total compensation,' private industry workers: Employment Cost Index by occupational and industry group, 1979-88
(Not seasonally adjusted)
10.7 7.8 6.4 5.7 4.4 3.8 3.1 3.9
10.4 7.5 6.4 5.4 4.1 3.6 3.2 4.5
White-collar occupations: 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
2.8 3.9 1.7 1.8 1.7 1.5 1.2 1.3 1.4
2.3 1.8 1.3 1.2 1.3 1.0 .9 .7 1.3
2.0 1.8 2.1 2.0 .8 1.3 .8 1.1
2.0 1.9 1.1 1.0 1.2 .5 .8 .8
Professional specialty and technical occupations: 1986 1987 1988
Executive, administrative, and managerial occupations: 1986 1987 1988
Table 2. Total compensation,' private industry workers: Employment Cost Index by occupational and industry group, 1979-88-Continued
Table 2. Total compensation,' private industry workers: Employment Cost Index by occupational and industry group, 1979-88-Continued
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Table 2. Total compensation,' private industry workers: Employment Cost Index by occupational and industry group, 1979-88-Continued
Table 2. Total compensation,' private industry workers: Employment Cost Index by occupational and industry group, 1979-88-Continued
(Not seasonally adjusted)
Transportation and public utilities:--Continued 1987 1988
Table 2. Total compensation,' private industry workers: Employment Cost Index by occupational and industry group, 1979-88–Continued
Table 2. Total compensation,' private industry workers: Employment Cost Index by occupational and industry group, 1979-88–Continued
(Not seasonally adjusted)
Includes transportation, public utilities, trade, finance, insurance, real estate, and services.
Table 3. Total compensation,' private industry workers: Employment Cost Index by region, bargaining status, and area size, 1979-88
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Table 3. Total compensation,' private industry workers: Employment Cost Index by region, bargaining status, and area size, 1979-88-Continued
(Not seasonally adjusted)
Indexes (June 1981 = 100)
Table 3. Total compensation,' private industry workers: Employment Cost Index by region, bargaining status, and area size, 1979-88-Continued
Table 4. Total compensation,' State and local government workers: Employment Cost Index by occupational and industry group, 1981-88
(Not seasonally adjusted)
107.4 115.1 122.0 130.1 137.5 144.7 151.1
Table 4. Total compensation,' State and local government workers: Employment Cost Index by occupational and industry group, 1981-88—Continued
Table 5. Wages and salaries, civilian workers:' Employment Cost Index by occupational and industry group, 1981-88
(Not seasonally adjusted)
Page 7
Table 5. Wages and salaries, civilian workers:' Employment Cost Index by occupational and industry group, 1981-88—Continued
Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88
White-collar occupations excluding sales: 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
67.5 71.8 76.8 82.3 90.0 98.5 107.0 113.5 120.2 125.6 131.1 136.2 141.5
68.5 72.9 77.9 83.4 91.5 100.0 108.4 114.9 121.4 127.1 132.4 137.1 142.9
65.4 69.6 74.2 79.3 85.5 93.5 102.6 110.3 117.4 122.9 128.8 133.3 139.1
66.4 70.6 75.2 80.5 87.4 95.3 104.3 111.4 118.4 124.4 129.4 134.3 140.1
1.6 1.8 2.1 2.3 3.0 3.4 2.6 1.9 1.5 1.0 1.3 1.4 1.0
1.5 1.5 1.5 1.3 1.7 1.6 1.3 1.2 1.0 1.2 1.0
6.4 6.9 7.2 9.3 9.4 8.7 6.1 5.9 4.5 4.4 3.9 3.9
Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88-Continued
Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88-Continued
(Not seasonally adjusted)
8.1 7.8 8.0 8.4 10.0 9.1 6.1 4.1 3.4 4.3 2.3 2.6
7.4 7.8 8.3 9.4 9.3 7.9 5.0 4.0 3.5 3.4 2.0 3.4
9.6 9.2 6.6 5.0 3.6 3.8 2.8 2.3 3.6
Precision production, craft, and repair occupations: 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
7.7 7.4 8.5 8.2 9.6 8.6 5.6 3.8 3.7 3.7 2.1 3.3
7.6 5.4 3.4 4.0 3.0 2.5 3.6
Machine operators, assemblers, and inspectors: 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
62.8 68.3 73.2 79.3 86.6 95.5 104.1 109.3 113.6 117.9 121.6 124.9 129.2
2.8 1.6 2.5 1.9 3.2 2.4 1.2 .6 1.1 .8 .8 .5
.8 1.7 1.4 2.2 2.4 2.3 1.1 1.0 .8 1.0 .8 1.0 1.0
2.2 2.8 2.2 2.3 3.1 2.0 2.0 .9 1.2 1.1 .4 .6 1.3
7.4 8.2 7.8 10.5 9.4 7.8 4.4 4.5 3.5 3.1 2.4 3.5
Transportation and material moving occupations: 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
64.3 68.5 74.2 81.1 89.1 96.8 103.2 108.0 111.7 114.5 118.0 120.5 123.7
62.5 67.7 72.5 78.6 86.0 93.5 101.0 106.0 110.7 113.4 117.7 119.8 122.3
67.2 71.3 77.5 83.9 92.2 100.0 104.1 110.3 112.7 115.7 118.9 121.5 125.4
63.6 68.2 73.2 79.9 88.1 95.3 102.7 106.9 110.2 114.0 117.8 120.1 122.9
1.3 1.5 1.2 1.5 .5 1.0 1.4 .4 .2 .3 .7
6.4 8.4 9.3 9.8 8.6 6.6 4.7 3.4
2.4 1.9 1.7 .8 -.5 .5 .1 .3 .5
See footnotes at end of table.
Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88–Continued
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Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88—Continued
Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88-Continued
Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88-Continued
(Not seasonally adjusted)
Transportation: 1985 1986 1987 1988
Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88-Continued
Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and industry group, 1975-88-Continued
(Not seasonally adjusted)
Finance, insurance, and real estate: 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
76.6 86.7 93.1 102.3 109.0 116.9 115.8 126.5 130.0 131.6
3.1 .4 2.7 1.4 1.5 -.7 5.4 .1 2.7 1.0
4.5 -1.3 .5 .7 -2 1.1 -1.5 1.5
10.2 9.8 8.4 6.7 5.0 5.1 3.8 5.5 -.4
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Table 6. Wages and salaries, private industry workers: Employment Cost Index by occupational and Industry group, 1975-88--Continued
Table 7. Wages and salaries, private industry workers: Employment Cost Index by region, bargaining status, and area size, 1975-88
1.4 2.0 1.6 1.7 2.1 1.7 .6 1.4 1.3 1.3 1.6 .9 1.4
1.4 1.7 1.5 1.8 2.1 1.9 2.7 1.6 1.1 1.2 1.0 .6 1.0
1.9 1.7 2.8 1.5 1.3 1.8 .8 1.2
6.8 7.2 6.8 8.3 8.5 7.9 5.6 4.8 4.8 5.0 4.8 4.1
6.3 6.7 6.8 6.9 8.9 7.9 7.9 5.1 4.5 5.2 4.3 4.5
7.5 6.8 6.9 8.7 8.1 6.7 6.5 4.7 4.8 5.4 4.0 4.6
South: 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
1.7 1.9 2.3 1.7 1.9 1.9 1.3 1.6 .0 1.1 .8 .8
2.2 1.7 1.9 2.0 1.6 1.0 .9 .9 .8 .8 1.6
1.5 1.3 1.2 1.6 2.4 1.9 .9 .9 1.2 1.0 .5 .5 .7
6.8 8.4 8.3 9.0 9.4 7.4 4.7 5.8 3.7 3.6 2.6 3.8
7.0 7.0 8.8 7.7 9.3 9.4 6.8 5.1 4.1 4.9 3.2 2.6
8.5 8.8 8.3 6.8 5.4 3.9 4.3 3.2 2.8
Midwest: 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
66.3 70.7 75.9 81.7 89.7 98.1 104.7 110.1 115.5 119.6 124.2 127.4 131.
67.4 71.8 77.7 83.7 91.6 100.0 106.1 111.5 116.0 121.1 124.4 128.5 132.1
63.9 68.4 73.2 78.9 85.4 93.3 101.6 107.6 112.8 117.8 122.5 125.3 129.6
65.3 70.2 74.9 80.1 87.6 95.3 103.3 108.6 113.6 118.7 122.9 126.2 129.9
1.5 .7 1.3 1.9 2.4 3.0 1.4 1.4 1.7 .8 1.1 1.0 1.1
1.6 1.5 2.3 2.5 2.0 1.9 1.3 1.3 .4 1.3 .2 .9 .6
1.5 2.0 1.6 2.0 1.9 1.6 1.4 1.2 1.6 1.2 .7 .9
2.3 2.6 2.4 1.5 2.6 2.2 1.7 .9 .7 .8 .3 .7 .2
6.6 7.4 7.5 9.9 9.4 6.7 5.2 4.9 3.5 3.8 2.6 3.1
7.1 7.0 7.8 8.2 9.2 9.0 5.9 4.8 4.4 4.0 2.3 3.4
6.5 8.2 7.8 9.3 9.2 6.1 5.1 4.0 4.4 2.7 3.3 2.8
7.4 6.8 6.9 9.4 8.8 8.4 5.1 4.6 4.5 3.5 2.7 2.9
West: 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
61.8 67.1 72.2 78.1 84.5 93.5 103.2 110.7 116.5 120.0 126.6 129.3 133.1
66.7 71.1 76.6 82.4 90.4 100.0 108.6 114.9 119.6 125.1 128.9 131.1 136.0
63.1 68.1 73.5 79.2 86.0 95.3 105.1 112.0 118.5 122.5 127.1 130.1 133.5
3.3 2.6 1.9 2.0 2.6 2.7 2.7 1.9 .3 1.2 .8 .8 1.0
2.3 1.7 2.2 2.0 2.4 2.1 .6 .7 .7 .9 .6 -.1 .8
7.3 7.1 7.9 9.2 10.9 10.2 5.7 4.1 4.4 3.3 2.4 2.8
8.0 7.8 7.8 8.5 10.8 10.3 6.6 5.8 3.4 3.8 2.4 2.6
Table 7. Wages and salaries, private industry workers: Employment Cost Index by region, bargaining status, and area size, 1975-88-Continued
Table 7. Wages and salaries, private industry workers: Employment Cost Index by region, bargaining status, and area size, 1975-88-Continued
(Not seasonally adjusted)
Nonunion workers: 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
67.6 71.8 77.0 82.8 90.2 98.2 105.6 110.9 116.7 122.1 127.3 131.8 136.4
68.7 73.0 78.8 84.4 91.8 100.0 106.5 112.2 117.8 123.4 128.5 132.8 138.1
65.2 66.3 69.5 70.8 74.3 75.4 80.2 81.1 86.0 88.0 93.4 95.1 101.6 103.2 108.3 109.5 113.7 115.2 118.8 120.4 125.2 125.9 129.4 130.3 134.3 135.0
2.0 1.5 2.2 2.1 2.5 3.3 2.3 1.3 1.3 1.4 1.1 1.2 1.0
1.6 1.7 2.2 1.9 1.7 1.8 .9
1.1 1.7 1.9 1.9 1.8 1.6 1.7 1.3 .8 1.5 .7 1.1
1.6 1.8 1.6 1.1 2.3 1.8 1.6 1.1 1.3 1.3 .6 .7 .5
Table 7. Wages and salaries, private industry workers: Employment Cost Index by region, bargaining status, and area size, 1975-88—Continued
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Table 7. Wages and salaries, private industry workers: Employment Cost Index by region, bargaining status, and area size, 1975-88-Continued
(Not seasonally adjusted)
8.8 7.4 8.9 9.2 6.8 4.3 4,1 4.0 3.2 2.7 4.1
9.0 7.9 9.4 8.4 5.5 4.2 4.3 3.1 3.0 3.3
NOTE: The indexes for the series in tables 3 and 7 are not strictly fixed-weighted. See appendix.
Table 8. Wages and salaries, State and local government workers: Employment Cost Index by occupational and industry group, 1981-88
Table 8. Wages and salaries, State and local government workers: Employment Cost Index by occupational and industry group, 1981-88—Continued
(Not seasonally adjusted)
Indexes (June 1981 = 100)
6.0 5.6 4.6 5.1 4.9 4.5 3.7
Table 9. Benefits, private industry workers: Employment Cost Index by occupational and industry group, 1979-88
Table 9. Benefits, private industry workers: Employment Cost Index by occupational and industry group, 1979-88-Continued
(Not seasonally adjusted)
14.5 5.8 9.2 8.8 4.9 4.3 3.5 5.3
14.4 6.4 9.0 8.6 4.4 4.2 3.7
Page 11
Chapter III. Employer Costs For Employee Compensation
A comprehensive analysis of employee compensation requires data not only on changes from period to period, but also on dollar costs at a given time. The compensation cost levels, published as costs per hour worked, are based on wage and benefit data collected for the ECI. To obtain the most current cost information, the cost levels are averaged using current employment weights. Because the employment weights for the ECI remain fixed while weights for cost levels change each year as employment shifts occur, year-to-year changes in cost level estimates usually differ from changes in the ECI. Employment shifts among industries and occupations with different wage and benefit levels do not affect the Ecı, but they do affect cost levels. An explanation of how the costs are calculated is presented in the appendix. Compensation cost level estimates have been prepared for March 1988 for all workers in private industry, for industry and occupational groups, and by geographic region and union status. These are presented in tables 10-16. Available data for 1987 are provided in tables 17-19.
relative importance between March 1987 and March 1988. Legally required benefits accounted for 8.8 percent of total compensation costs, compared with 8.4 percent in March 1987. Social Security, the largest legally required benefit, cost employers, on average, 81 cents per hour worked-5.9 percent of all compensation costs in March 1988. A year earlier, Social Security costs made up 5.6 percent of compensation costs; the growth in employer Social Security costs resulted primarily from a 5-percent rise in the tax rate (from 7.15 to 7.51 percent). Insurance was another major benefit category that grew in importance from March 1987. Insurance items (life, health, and sickness and accident insurance) accounted for 5.6 percent of compensation in March 1988, compared with 5.4 percent the previous year. Health care is by far the most costly of the insurance items. The retirement and savings category was the only one to decline in importance from 1987, decreasing from 3.6 percent to 3.3 percent of total compensation costs.
Components of compensation costs. In March 1988, employer costs for employee compensation in private industry averaged $13.79 per hour worked. Benefits made up 27.3 percent of compensation costs. (See chart 8.) That figure compares with 26.8 percent in March 1987. Text table 4 compares the distribution of costs among major components in 1987 and 1988. (See p. 57 for definitions of compensation components.)
Text table 4. Percent distribution of components of compensation costs, private industry, March 1987 and March 1988
Cost levels by industry group. Compensation costs per hour worked in March 1988 averaged more for workers in goodsproducing industries ($16.42) than for those in serviceproducing industries ($12.72). Costs in service-producing industries showed wide variation, ranging from $8.00 in retail trade to $20.50 in transportation and public utilities. (See chart 9.) Among the goods-producing industries for which data are available, compensation costs ranged from $14.55 in nondurables manufacturing to $17.44 in durables manufacturing. Also, as text table 5 shows, there was wide variation in both goods and service-producing industries in the proportion of compensation costs accounted for by benefits. In general, industries with relatively high compensation costs had higher proportions of benefits to total costs. For example, transportation and public utilities, which had the highest compensation costs, also had the highest proportion of benefits. In contrast, retail trade had the lowest compensation costs and the lowest proportion of benefits.
By occupational group. Compensation costs per hour worked were higher for white-collar workers ($15.97) than for bluecollar workers ($13.87) and service workers ($6.76). (See 6 Data for the components of insurance are not shown separately because many survey respondents report data for all insurance items combined.
Chart 8. Components of employer costs for employee compensation, private industry, March 1988
Legally required benefits 8.8%
Chart 9. Employer costs for employee compensation by industry group, private industry, March 1988
Text table 5. Total compensation costs per hour worked and benefits as a proportion of those costs, by private industry group, March 1988
In all private industry, benefits made up a larger proportion of compensation costs for blue-collar workers as a whole (30.8 percent) than for white-collar workers (25.9 percent) and service workers (23.1 percent). This relationship held when occupational groups within the blue-collar and whitecollar categories were compared.
Benefit cost as a per- cent of compensation
By occupation within industries. Group averages are sometimes misleading. For example, although overall average pay might be higher in one industry than another, the pay for a given occupation may be about the same in both industries or perhaps even higher in the lower pay industry. Text table 7 shows that differences in compensation costs are narrower in most cases when comparisons are made for individual occupational groups than when the overall industry costs are compared. A major exception to that relationship is service workers, whose compensation costs are substantially higher on average in goods- than in service-producing industries.
Text table 7. Total compensation costs per hour worked by occupational group within industries, private industry, March 1988
text table 6 and chart 10.) Costs for white-collar occupations varied widely, ranging from $10.86 for sales workers to $23.74 for executive, administrative, and managerial occupations. Costs for blue-collar workers ranged from $10.14 for handlers, cleaners, helpers, and laborers to $17.32 for precision production, craft, and repair occupations. No breakdown in compensation costs for various service occupations (e.g., janitors, waiters and waitresses, and nursing aides) is available. Occupations did not show the same consistent positive relationship between compensation costs and the proportion of benefits to total costs that was found for industries. The occupational groups with the highest compensation costsprofessional and technical workers and executive, administrative, and managerial-were below average in benefit costs as a percentage of total compensation costs.
All occupations White-collar occupations. Professional specialty and technical Executive, administra. tive, and managerial Sales .. Administrative support including clerical Blue-collar occupations Precision production, craft, and repair Machine operators, assemblers, and inspectors .. Transportation and material moving Handlers, equipment cleaners, helpers, and laborers Service occupations
Text table 6. Total compensation costs per hour worked and benefits as a proportion of those costs, by occupational group, private industry, March 1988
All private industry White-collar occupations Professional specialty
By union status. Compensation costs averaged more for union workers than nonunion workers in private industry, in both manufacturing and nonmanufacturing industries, and also when the comparison was limited to blue-collar workers in manufacturing, as text table 8 shows. Benefits consistently made up a larger part of total compensation costs in union situations. Union and nonunion cost level differences reflect a variety of influences, including variation in the distribution of union and nonunion workers among occupations and industries.
Chart 10. Employer costs for employee compensation by occupational group. private industry, March 1988
Table 10. Private industry workers by major industry category: Employer costs per hour worked for employee compensation and costs as a percent of total compensation, March 1988
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Table 11. Private industry workers by major occupational category: Employer costs per hour worked for employee compensation and costs as a percent of total compensation, March 1988
Table 12. Private industry workers by region and bargaining status: Employer costs per hour worked for employee compensation and costs as a percent of total compensation, March 1988
Table 13. Private industry workers by occupational and industry category: Employer costs for employee compensation and costs as a percent of total compensation, March 1988
Retire- ment and Legally savings required
Workers, by occupational group: White-collar occupations. Professional specialty and technical Executive, administrative, and managerial Sales Administrative support including clerical
15.97 20.85 23.74 10.86 11.52
11.84 15.36 17.68 8.42 8.32
Blue-collar occupations Precision production, craft, and repair Machine operators, assemblers, and inspectors Transportation and material moving Handlers, equipment cleaners, helpers, and laborers
Table 14. Workers in private goods-producing and service-producing industries by occupational group: Employer costs for employee compensation and costs as a percent of total compensation, March 1988
Table 15. Workers in private manufacturing and nonmanufacturing Industries by occupational group: Employer costs for employee compensation and costs as a percent of total compensation, March 1988
Retire- ment and Legally savings required
Page 13
Table 16. Private industry workers by bargaining status and occupational and industry group: Employer costs for employee compensation and costs as a percent of total compensation, March 1988
Table 17. Private industry workers by major industry category: Employer costs per hour worked for employee compensation and costs as a percent of total compensation, March 1987
Nonmanufacturing industries
Table 18. Private industry workers by major occupational category: Employer costs per hour worked for employee compensation and costs as a percent of total compensation, March 1987
Table 19. Private industry workers by occupational and industry group: Employer costs for employee compensation and costs as a percent of total compensation, March 1987
Retire- ment and Legally savings required
Appendix. Description of the Survey and Estimation Methods
Both the Employment Cost Index (ECI) and Employer Costs for Employee Compensation (cost levels) are based on compensation cost data obtained from a single sample survey of establishments. The survey covers all occupations within the private economy (excluding farms, households, and the self-employed) and the public sector (excluding the Federal Government). In the March 1988 quarter, the ECI Sample included about 18,000 occupations within 3,400 firms in the private sector and about 3,500 occupations within 700 establishments in State and local governments.
proportionate to their relative employment size within the industry. Wage and benefit information is collected from each establishment on a quarterly basis. After 3 to 4 years of data collection, the industry sample is replaced in order to reduce the burden on respondents and to keep the sample frame as current as possible. A set of industries is replaced each calendar quarter so that the total sample replacement is gradual.
Establishment sample. The sample of establishments is drawn on a probability basis by industry from State unemployment insurance and supplementary files. The establishments are classified in industry categories based on the 1972 Standard Industrial Classification (SIC), as defined by the U.S. Office of Management and Budget. In most cases, the establishments are categorized at the 2-digit sic level, such as business services or electrical machinery manufacturing. The establishments are systematically selected with probability of selection
Occupational sample. After the industry sample of establishments is drawn, occupations at the most narrowly defined level are sampled in each establishment. As is the case with establishment sampling, the occupations within establishments are sampled on a probability-proportionate-toemployment basis. Occupational sampling is done by a BLS representative during a personal visit in which initial wage and benefit information is collected. A specific number of narrowly defined occuptions is sought (e.g., eight) with the number varying by establishment employment size. The probability of an occupation being selected is proportionate to its employment size within the establishment. Each narrowly defined occu
Definitions of Compensation Components
Wages and salaries—the straight-time hourly wage rate production bonuses such as lump-sum payments provid- wage and salary rates are based on total earnings before Insurance benefits-health, life, and sickness and acci- payroll deductions, excluding premium pay for overtime dent insurance. and for work on weekends and holidays, shift differen- tials, and nonproduction bonuses such as lump-sum pay- Retirement and savings benefiis-pension and other retire- ments provided in lieu of wage increases. Production ment plans, and savings and thrift plans. bonuses, incentive earnings, commission payments and cost-of-living adjustments are included in straight-time Legally required benefits-Social Security, railroad retire- wage and salary rates. ment and supplemental retirement, railroad unemploy- ment insurance, Federal and State unemployment insurance, workers' compensation, and other benefits re- Other benefits-severance pay, supplemental unemploy- Page 14
times the rate at which each holiday is paid (8 hours of straight-time pay). This annualized current cost is then divided by the annual hours worked (2,000) to yield the current cost per hour worked. Thus, in this example the current cost is:
pation selected is classified into one of the following nine major occupational groups: Professional specialty and technical occupations; executive, administrative, and managerial occupations; sales occupations; administrative support, including clerical; precision production, craft, and repair; machine operators, assemblers, and inspectors; transportation and material moving occupations; handlers, equipment cleaners, helpers, and laborers; and service occupations. The EcI survey occupational classification system was originally based on the classification system used in the 1970 Census of Population. Beginning June 1986, the occupations were redefined to the classification system used in the 1980 Census, which is based on the Standard Occupational Classification (SOC) system.'
10 X (8 X $10) = $800; $800=2,000 $.40 per hour worked.
Example 2. A health insurance plan is provided all employees in the selected occupation. The monthly premium, paid entirely by the company, is $120 per employee. Each employee works 2,000 hours per year. The annualized current cost in this example is the monthly premium ($120) times 12 months. This annualized current cost is then divided by the number of annual hours worked (2,000) to yield the current cost per hour worked. Thus, in this example the current cost is:
Data collection is initiated by a bls field representative during a visit to the sample reporting unit. The wage and benefit information is summarized in a report that is sent to the respondent each quarter to review and report changes. The changes are usually reported by mail or telephone. Data are collected for the pay period including the 12th day of the survey months-March, June, September, and December.
$120 X 12 = $1,440; $1,440=2,000 = $.72 per hour worked.
Collecting wage and salary data. During the initial visit and in each subsequent quarter an establishment is in the ECI sample, Bls field representatives collect the average hourly straight-time wage rate of each of the sampled occupations.
Collecting benefit cost data. Benefit costs are measured as a cost at a particular point in time rather than in the form of a past expenditure. The approach used in the Ecı is referred to as the current-cost approach. That is, annual costs are calculated based on the current price of benefits and current plan provisions. The annual cost is then divided by the annual hours worked to yield the cost per hour worked for each benefit. The information needed to calculate benefit costs depends on the specific benefit plan. However, the following examples illustrate, for some basic plans, the information that is collected and how the costs are calculated.
To measure compensation costs free from the influence of employment shifts among occupations and industries, the ECI is calculated with fixed employment weights. Since June 1986, employment counts from the 1980 Census of Population have been used; prior to that time, employment counts were taken from the 1970 Census. Sample weights (the weight of the establishment occupation in the sample) are also used. The sample weights reflect both employment in each establishment occupation and the probability of selection of the occupation within the establishment. The Eci is a standard Laspeyres fixed-employmentweighted index, as modified by the special statistical conditions that apply to the ECI." The following discussion focuses on the ECI measure of wage change in private industry, but indexes for State and local government workers and civilian (non-Federal) workers, and of compensation and benefit cost changes, are calculated in essentially the same fashion. A wage index for the ECI is a weighted average of the cumulative wage changes within each cell (generally a major occupational group in a 2-digit sic industry), with baseperiod wage bills as the fixed weights for each cell. (The base-period wage bill is the fixed employment weight from the Census times the sample-weighted average wage in the base period of June 1981.) The formula is:
Example 1. Each employee in the selected occupation receives 10 paid holidays, with 8 hours of straight-time pay for each holiday. The hourly wage is $10. All employees work 2,000 hours per year. The annualized current cost in this example is the number of paid holidays provided under current plan provisions (10)
For a discussion of the change in the classification system and the effect of the change on Eci estimates, see Albert E. Schwenk, "Introducing New Weights for the Employment Cost Index," Monthly Labor Review, June 1985, pp. 22-27. ? See Felicia Nathan, "Analyzing Employer Costs for Wages, Salaries, and Benefits." Monthly Labor Review, October 1987, pp. 3-11. 3 See G. Donald Wood,''Estimation Procedures for the Employment Cost Index," Monthly Labor Review, May 1982, pp. 40-42.
An Illustration of the Effects of Fixed Weights
The following example illustrates the effects of using fixed rather than current weights. Consider the case of an employer with two types of workers, electricians and janitors. In March 1987, the firm employs 10 electricians at $10 per hour and 10 janitors at $5 per hour. Both the average wage and the wage rate are $7.50.
In March 1988, both groups are given a 10-percent wage increase, but now only 5 janitors are employed. The average wage (without fixed weights) increased to $9.17.
The increase in the average wage reflects the 10-percent increase in the wage rates and the relative
But when fixed employment weights are used (that is, the number of janitors remains fixed at
In this case, the increase is 10 percent, the size of the wage-rate increase which was granted to both occupations.
The other variables are defined as follows:
is the estimated base-period (June 1981) wage bill for the ith cell. The wage bill is the average wage of workers in the cell times the number of workers represented by the cell (the Census weight).
Rt,i is the ratio of the current-quarter weighted average wage in the cell to the prior-quarter weighted average wage in the cell, both calculated using matched establishment/occupation wage quotations. The weights applied are the sample weights. The index computation each quarter involves six steps: 1. Establishment occupation sample weights are applied to the average occupational wage in every establishment that
Mt,i is the cumulative average wage change in the ith cell from time 0 (base period) to time t (current quarter).
as both current- and prior- quarter wage information, to alculate a weighted average wage for each cell (i.e., occuation within industry) for the current and prior survey perids.
based on the current ECI Sample. The indexes for these series, consequently, are not strictly comparable to those for the aggregate, industry, and occupation series.
The ratio of the current-quarter to the prior-quarter weightaverage wage is then calculated for each cell.
Calculating percent changes. Index numbers are published for all ECI series having data available back to June 1981. Index numbers express the percent change from June 1981 to the quarter the index number represents. For example, an index of 114.0 indicates costs have increased 14.0 percent since June 1981. The index numbers can be used to calculate percent changes between any two time periods through a series of steps illustrated by the following example:
This ratio for each cell is multiplied by the cumulative ercent change in wages in that cell over the period from ine 1981 (the base) to the prior quarter. The product is the urrent-quarter cumulative percentage wage change in the ell since the base period.
This measure of cumulative percentage wage change is multiplied by the base-period wage bill (the average wage June 1981 multiplied by the fixed Census weight) to enerate an estimate of the current-quarter wage bill for the ell.
ECI current index Earlier index .. Difference Divided by earlier index Equals Results multiplied by 100 Equals percent change
Both the current-quarter and the base-period wage bills ce then summed over all cells within the scope of the inex. For example, for the manufacturing index, the wage Ells would be summed across all industries and occupations manufacturing.
For series not having data for June 1981, 3-month and 12-month percent changes are provided in place of index numbers. The 3-month and 12-month percent changes are also provided for the index series as a convenience to users. Summing the percent changes does not necessarily yield a percent change between two periods spanning several quarters or years. The percent changes must be compounded. For example, the compounded 9-month percent change from the three consecutive 3-month changes of 1.1 percent, 1.2 percent, and 1.9 percent is calculated as follows:
The summed current-quarter wage bill is divided by the immed base-period wage bill. The result, when multiplied y 100, is the current-quarter index. That index is divided y the prior-quarter index to provide a measure of quarter-quarter change, the link relative.
The example at the bottom of the page illustrates the proceures for a hypothetical industry. The computations for the occupational and industry groups llow the same procedures as those for the overall indexes xcept for summation. The wage bills for the occupational roups are summed across occupational groups and regions or each industry division. Computational procedures for the regional, unon/nonunion, and metropolitan/nonmetropolitan measures f change differ from those of the national indexes because he current sample is not large enough to hold constant the wage bills at that level of detail. The employment weights re, therefore, reallocated within these series each quarter
Prior to computing the average cost level estimates at the aggregate levels, wages and salaries are converted to a straight-time hourly rate and benefit costs are converted to
Percent change in wage bill 071) (k)
the cost per hour worked (see section on collecting benefit cost data). To compute average current cost level estimates at higher levels of industry and occupation aggregation, current industry and occupational employment weights are required. To compute the March 1988 cost levels, for example, March 1988 industry employment figures from the BLS Current Employment Statistics (CES) program were used in conjunction with the sample weights of the establishment occupations in the March 1988 ECI Sample. (The employment figures from the CES sample survey were adjusted using data from a complete count of establishments: The first quarter 1987 Employment, Wages, and Contributions Report, known as the ES-202 Report.) The sample weights are ECI estimates of the occupational employment, reflecting both employment in each establishment occupation surveyed and the probability of selection of that establishment occupation. The procedure for estimating the cost levels at the aggregate levels involves two steps. The first step applies the ECI sample weights to compute a cost for each benefit in each major occupational group within each 2-digit industry (for example, paid vacations for sales workers in transportation equipment manufacturing). The second step apportions the industry weights from the CES program over the major occupational groups, using the employment of the groups as estimated from the ECI sample. The second step is applied as the costs at the detailed levels (e.g., major occupational group/2-digit industry) are aggregated to calculate the published costs.
Nonsampling errors have a number of potential sources. The primary sources are (1) survey nonresponse and (2) data collection and processing errors, such as incorrect information provided by respondents, definitional difficulties, and errors in recording, coding, and processing data obtained. Nonsampling errors are not measured. However, the ECI program has implemented procedures for reducing nonsampling errors, primarily through quality assurance programs. The quality assurance programs include the use of data collection reinterviews, observed interviews, computer edits of the data, and systematic professional review of the reports on which the data are recorded. These programs serve as a training device to provide feedback to the field staff on errors. They also provide information on sources of error which can be remedied by improved collection instructions or data processing edits. Extensive training of field representatives is also conducted to maintain high standards in data collection. Because not all sample units respond to the ECI survey, nonresponse adjustment is required. For permanent refusals identified during initial data collection, the weights of responding units are adjusted to reflect nonresponse by similar establishments. For temporary nonresponses for wage data during update quarters, or if some benefit data are missing, the missing data are imputed on the basis of information provided by similar establishments.
Sampling errors are differences that occur between the results computed from a sample of observations and those computed from all observations in the population. The estimates derived from different samples selected using the same sample design may differ from each other. A measure of the variation among these differing estimates is the standard error. It can be used to measure the precision with which an estimate from a particular sample approximates the average result of all possible samples. Standard errors for 12-month changes in published wage, benefit, and compensation cost changes are provided in tables A-1 through A-3. Standard errors (expressed as ratios to the cost estimate, or relative errors) for all published estimates of employer costs for employee compensation are provided in
Yb,k,o is the weighted cost level estimate for a benefit in industry k, for occupation o (weighted with sample weights);
tables A-4 through A-10. (For the change estimates, standard errors were considered more meaningful than relative errors.) The standard error can be used to define a range (confidence interval) around the estimate. The 95-percent confidence interval means that if all possible samples were selected and an estimate of the value and its sampling error were computed for each, then, for approximately 95 percent of the samples, the intervals from 2 standard errors below the estimates to 2 standard errors above the estimates would include the "true" average value. For example, the 95-percent confidence interval for a cost estimate of $10 with a standard error of 10 cents would be $10.00 plus or minus 20 cents (2 X 10), or $9.80 to $10.20. The method used for computing the standard errors for both the 12-month percent change in the ECI and the cost levels is called "balanced repeated replication." Each industry sample is divided into a number of variance strata, and the sample in each variance stratum is divided into halfsamples. The cost level or percent-change estimates are repli
Rs,t,o is the annual relative for some cell from time s to time t calculated using the full sample;
and Rs,t,i is the annual relative for the same cell from time s to time t calculated using the ith balanced half-sample.
* For a given level of precision, standard errors on estimates of change are about the same regardless of the magnitude of the change. That is, the standard error for a series is likely to be about the same when wages and salaries are rising 8 percent a year as it is when wages and salaries are rising 2 percent a year. The relative error, however, would be much larger with the 2-percent change than with the 8-percent change.
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Table A-1. 12-month percent changes in total compensation, and standard errors,' Employment Cost Index, September 1987-June 1988
Table A-1. 12-month percent changes in total compensation, and standard errors,' Employment Cost Index, September 1987-June 1988–Continued
(Not seasonally adjusted)
12-month Standard 12-month Standard 12-month Standard 12-month Standard change error change error change error change error
Workers, by Industry division:-Continued Insurance
Services Business services Health services Hospitals
Table A-2. 12-month percent changes in wages and salaries, and standard errors,' Employment Cost Index, September 1987-June 1988
Table A-2. 12-month percent changes in wages and salaries, and standard errors,' Employment Cost Index, September 1987-June 1988-Continued
(Not seasonally adjusted)
12-month Standard 12-month Standard 12-month Standard 12-month change error change error change error change
Workers, by industry division:-Continued Insurance
Services Business services Health services Hospitals
Table A-3. 12-month percent changes in benefits, and standard errors,' Employment Cost Index, private industry workers, September 1987-June 1988
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Table A-7. Employer costs per hour worked for employee compensation, and relative errors,' private industry workers by occupational and industry group, March 1988
The relative error is the standard error expressed as a percent of the cost. We can be 95-percent confident that the interval around the cost estimate bounded by two times plus and two times minus the relative error contains the 'true' cost. Includes severance pay, supplement unemployment insurance, and merchandise discounts in department stores.
Cost per hour worked is $0.01 or less. Includes mining, construction, and manufacturing. s Includes transportation, communication, and public utilities; wholesale and retail trade; finance, insurance, and real estate; and service industries. Page 17
Table A-9. Employer costs per hour worked for employee compensation, and relative errors,' workers in private manufacturing and nonmanufacturing industries by occupational group, March 1988
The relative error is the standard error expressed as a percent of the cost. We can be 95-percent confident that the interval around the cost estimate bounded by two times plus and two times minus the relative error contains the 'true' cost.
Includes severance pay, supplement unemployment insurance, and merchandise discounts in department stores. Cost per hour worked is $0.01 or less. Page 18 |
The u.s. bureau of labor statistics does not monitor pay levels for which type of temporary workers?
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