Beside the 4th quarter GDP report, today's big economic news is the Bureau of Labor Statistics' release of the Employment Compensation Index for December. Here's the lowdown.
Total compensation costs for civilian workers increased 0.7 percent from September to December 2004, seasonally adjusted, moderating from the 0.9 percent gain from June to September, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Benefit costs rose 1.4 percent, while wage and salary costs increased 0.4 percent, the smallest quarterly increase in wage and salaries in 2004. The Employment Cos 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 nonfarm private and State and local government workers
Rises in benefit costs accounted for more than 60 percent of the increase in compensation costs for civilian workers from September to December 2004. Among private industry workers, benefit costs contributed nearly two-thirds of compensation gains during the quarter, with defined benefit retirement costs accounting for nearly one-third of the gain in compensation costs. Among State and local government workers, benefit costs composed half of compensation gains during the September to December period, with health insurance costs accounting for one-fifth of the gain in compensation costs.
Here's a little more perspective on those numbers, from SmartMoney.com.
In the year through December, compensation costs were up 3.7%, compared with a 3.8% rate in the year through September.
In its report Friday, the Labor Department said wages and salaries grew at the slowest pace since March 1999 during the fourth quarter, climbing 0.4%% after a 0.7% increase in the third quarter. Those costs account for about 70% of the employment cost index. In year-on-year terms the increase was 2.4%, unchanged from that of the third quarter.
But benefit costs, which have grown more than twice as fast as wages over the last two years, climbed more rapidly in the fourth quarter. Those costs were up 1.4% after a 1.1% increase in the third quarter. In annual terms, benefits costs grew 6.9% in the fourth quarter, up from the 6.3% annual rate of the prior quarter. Many economists attribute the slow pace of hiring during recovery from the last recession in part to the rapid growth of benefits, especially health insurance.
I'm not convinced that last sentence should be taken at face value. After all, from an employer's point of view all that should matter is the total cost of labor, not the form in which payment is made. The difference, of course, might be that payments in the form of health care benefits are more open-ended and "sticky" than payments in wages. If that's so, perhaps its a wrinkle in this debate (with follow-ups here and here) that deserves some consideration.