Private Sector Wage and Salary Increases Slow in Third Quarter
The U.S. Bureau of Labor Statistics (BLS) reported in its quarterly Employment Cost Index (ECI) that wages and salaries for private sector employees increased 5.2% for the year ending in September, up from a 4.6% increase the year prior. In the first quarter of 2022, the private sector wage and salary increase had been 5% and 5.7% in the second quarter. Experts view this report as evidence that U.S. wage growth is slowing. After adjusting for inflation, employee wages and salaries declined 3% over the year ending in September.
The ECI is the broadest measure of U.S. labor costs. Economists and policymakers widely view it as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and job-quality changes and is not subject to the same distortions as other measures. The index tracks changes in employers’ labor costs for wages and salaries as well as health, retirement and other benefits.
The BLS’ report also revealed that private sector benefits costs increased 5% over the same 12-month period, up from a 2.6% jump a year earlier. The cost of wages and benefits—also known as compensation costs—for all civilian workers, which includes private sector and state and local government employees, rose 1.2% during the third quarter and were up 5% for the year. This reflects a slight slowdown from the second quarter when wages and salaries increased 1.4% quarter over quarter and 5.3% for the year ending in June. Economists expected the ECI to increase by 1.2%, but inflation has eroded those gains.
The report shows that employment costs can differ greatly by industry. Among private sector industries, increases of compensation costs year over year ending in September ranged from 3.5% for management, professional and related occupations to 7.7% for service occupations.
Employer Takeaways
Despite the increase in U.S. labor costs in the third quarter, private sector wage growth slowed considerably, suggesting that inflation had either peaked or was close to doing so. This has resulted in increased labor costs for employers as they raise wages and offer competitive benefits and other perks to attract workers and retain existing employees during the third quarter. However, these increases failed to keep up with inflation, which is currently 8.2% for the year ending in September.
Employers should continue to monitor employment trends to stay informed on the evolving market to stay competitive. Contact us for more resources.
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