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Employment cost data show small real gains over recovery

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Snapshot for October 31, 2006.

Employment cost data show small real gains over recovery

By Jared Bernstein

Thanks to moderating inflation, today’s employment cost index data [PDF]  from the Bureau of Labor Statistics showed the first real gains in average compensation in over a year.  The chart below shows year-over-year changes in real compensation along with the wage component of compensation (i.e., excluding benefit costs).*

The data provide little cause for inflation anxiety over faster growing labor costs: nominal earnings show little acceleration.  On a quarterly basis, wages grew at the same pace as last quarter (0.9%), and compensation grew only slightly faster (1.0% vs. 0.9% last quarter).  On a yearly basis, wages have grown more quickly in recent quarters, while benefits have decelerated.  Compensation grew 3.3% before inflation over the past year, faster than recent quarters, but well within the average over recent years (the average growth rate over the recovery was 3.5%).

In real terms, neither compensation nor wages have grown much over the recovery.  Real compensation is up a total of 4.3% over the past five years, and real wages are up less than a percent (0.9%).  Annualized, compensation is up 0.8% per year, and wages are up only 0.2% per year, while productivity rose about 3% annually over these years.

In other words, even looking at broad averages (and ignoring the fact that rising inequality has meant that low and median earnings grew more slowly than higher earnings), earnings gains have been fairly minimal over the recovery. Moreover, as the economy and employment growth slow, nominal wage growth will likely slow in coming quarters.

Real yearly changes, employment costs, 2002q1-2006q3

* Data are not seasonally adjusted.  Due to coding changes, this series begins in 2001q1, so yearly changes start in 2002q1.


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