Employee Compensation

The BLS released its quarterly estimate of labor compensation this morning. From the news release:

Total compensation costs for civilian workers increased 1.0 percent from June to September 2006, seasonally adjusted, virtually unchanged from the 0.9 percent gain from March to June, the Bureau of Labor Statistics of the U.S. Department of Labor reported today... The Employment Cost Index (ECI), a component of the National Compensation Survey, measures quarterly changes in compensation costs, which include wages, salaries, and employer costs for employee benefits for civilian workers (nonfarm private industry and state and local government).

The purpose of this survey is to look at how much more firms are paying their workers in wages and benefits. But naturally, the cost of labor to firms is the same thing as the compensation for labor earned by workers, so this data can be read in very different ways.

First, one might worry that it suggests inflationary pressures, as the cost of labor goes up.

But at the same time, this report signals that workers are earning more - which is good news for workers, after all.

Except for one problem: the figures cited above are all in nominal terms. Adjusting for inflation, the report provides yet more evidence of why most average Americans do not think that the economy is in great shape - the increases in compensation to workers are merely keeping up with inflation.

The chart below shows the series for wages/salaries and benefits for workers in the private sector. The wage/salary series was then deflated by the price index for personal consumption expenditures, and the benefits series was deflated by the price index for health insurance. (2006 figures were extrapolated from the first three quarters of the year.)



To be fair, benefits include things other than simply health insurance (namely employer retirement contributions), so this inflation-adjusted benefit series may overstate the degree to which inflation has eroded the value of those benefits. On the other hand, I'd be willing to bet that most of the nominal increase in the cost of providing benefits to workers is the result of rising health insurance premiums, not due to increasingly expensive retirement contributions... in which case the approximation presented above may not be too bad.

Regardless, this report certainly seems consistent the notion that average workers are not enjoying much of an increase in prosperity during this economic expansion.