U.S. Employment Cost Index, Q3 2024 Commentary
2024 Third Quarter Summary – Compensation costs continue to rise faster than inflation: good news for workers, especially union workers
For the sixth quarter in a row, the 12-month growth rate of employee compensation in the U.S. (controlling for occupational composition) exceeded that of the general cost of living. This bodes well for the purchasing power of employees’ take-home pay. Released on October 31, 2024, the U.S. Bureau of Labor Statistics’ 12-month Employment Cost Index (ECI), for the 12 months ending in September, reported in at 3.9 percent. The US household Consumer Price Index (CPI) for the same 12-month period was just 2.4 percent. (Chart 1, Table 1).
Table 1
|
Employment Cost Index 12-month % change, not seasonally adjusted All Civilian Workers |
|||
|
Total Compensation |
Wages and Salaries |
Total Benefits |
|
|
2020 Q1 |
2.8 |
3.1 |
2.1 |
|
Q2 |
2.7 |
2.9 |
2.2 |
|
Q3 |
2.4 |
2.5 |
2.3 |
|
Q4 |
2.5 |
2.6 |
2.3 |
|
2021 Q1 |
2.6 |
2.7 |
2.5 |
|
Q2 |
2.9 |
3.2 |
2.2 |
|
Q3 |
3.7 |
4.2 |
2.5 |
|
Q4 |
4.0 |
4.5 |
2.8 |
|
2022 Q1 |
4.5 |
4.7 |
4.1 |
|
Q2 |
5.1 |
5.3 |
4.8 |
|
Q3 |
5.0 |
5.1 |
4.9 |
|
Q4 |
5.1 |
5.1 |
4.9 |
|
2023 Q1 |
4.8 |
5.0 |
4.5 |
|
Q2 |
4.5 |
4.6 |
4.2 |
|
Q3 |
4.3 |
4.6 |
4.1 |
|
Q4 |
4.2 |
4.3 |
3.8 |
|
2024 Q1 |
4.2 |
4.4 |
3.7 |
|
Q2 |
4.1 |
4.2 |
3.8 |
|
Q3 |
3.9 |
3.9 |
3.7 |
Institute for Compensation Studies. Data Source: U.S. Bureau of Labor Statistics, Employment Cost Index, September 2024, released October 31, 2024.
Shifting regional ranking
Across the U.S., the greatest upward pressure on employee compensation over the past 12 months was reported in the U.S. West. Private sector cost of employee compensation grew 4.5 and 4.3 percent in the Pacific and Mountain regional divisions. New England, in contrast, saw the slowest year-on-year growth at 2.5 percent. This top and bottom ranking of the U.S. West and New England, respectively, little changed from last quarter (Table 2).
Table 2
The highest acceleration in private sector employer cost for employee compensation was reported in the West North Central division with the 12-month ECI increasing from 3.1 to 3.6 percent, moving this region from that with the slowest private sector employer cost for employee compensation to the middle of the pack. (See Figure 1 for state composition of regional divisions.) The South Atlantic reported deceleration from 3.9 percent to 3.3 percent, dropping it into the bottom half of regional divisions when ranked in descending order of private sector 12-month ECI.
While no longer accelerating, unionized workers’ compensation growth continues to outpace non-union growth
The 12-month total compensation ECI for union workforces in Q3 (September 2024) dipped to 5.8 percent from last quarter’s 6.0 percent peak. This ends what had been a steep and uninterrupted acceleration since March 2023. The Q3 dip does not, however, close the still notable divergence in compensation growth rates between union and non-union workforces. The 12-month growth rate of total compensation for non-union workforces peaked a full year earlier and has remained on a solid deceleration path since. For non-union employees, total compensation costs rose 3.4 percent over the past 12 months ending in September. (Chart 2).
The alternating ECI trend we see beginning in 2021 for union and non-union workforces is a repeat of past post-recession trends, with the non-union ECI accelerating first, then declining as the union ECI then picks up speed. This reflects how multi-year union contracts that do not include cost-of-living adjustments can slow increases in union compensation during times of economic rebound or inflation; then, as bargaining contracts come to term and are renegotiated, ground is made up on compensation in real terms. Compensation growth for non-union workforces is likely to rise faster in economic recovery and closer in step with changes in inflation. The post-Covid countertrend of the 12-month ECI for union versus non-union workers also holds when considering employee wages and salaries separately from employee benefits. (See Charts 3 and 4).
Compensation growth in the highly unionized Aerospace industry differs from the pattern described above. Since 2005, Aircraft manufacturing workers’ compensation had the lowest increase of all industries reported in the current release, rising by 37 percent, well below the average increase of 66 percent. This gap will narrow soon, now that over 33.,000 Boeing workers ratified an agreement to end a 53-day strike. The new contract includes a signing bonus and a 38 percent general wage increase over the next four years, which compounds to roughly 43 percent over the life of the agreement.
Health insurance benefit costs decelerate but continue to rise faster than CPI
Slowing slightly from 3.6 percent in Q2 to 3.4 percent in Q3, the growth rate of employer costs for employee health insurance benefits may be entering another wave of fluctuation. Since June 2021, the growth rate of private sector employer costs for employee health insurance benefits has fluctuated erratically compared to its two-decade-long downward trend following the Q3 2002 peak of 11.4 percent (Chart 5). Despite this quarter’s slight dip, the year-on-year employer cost for health insurance grew faster than that for benefits overall for a second quarter in a row, albeit marginally. Not since 2019 (June - December) has there been a multi-quarter period where private sector employers experienced costs of employee health insurance rising faster, year-on-year, than total benefits.
The Employment Cost Index (ECI) is produced by the U.S. Bureau of Labor Statistics to measure trends in the costs of compensation paid by employers to their employees, controlling for composition of the workforce. The ECI is one of the labor market indicators used by the Federal Reserve Board to monitor the effects of fiscal and monetary policies and is released quarterly with a one-month lag.
Data for the Q3 2024 reference period were collected from a probability sample of approximately 23,600 occupational observations selected from a sample of about 5,600 private industry establishments and approximately 7,500 occupational observations selected from a sample of about 1,400 state and local government establishments that provided data at the initial interview.
Link to most recent ECI release: https://www.bls.gov/news.release/eci.toc.htm.
The Institute for Compensation Studies (ICS) at Cornell University’s ILR School is an interdisciplinary center that researches, teaches and communicates about monetary and non-monetary rewards from work, and how these rewards influence outcomes for individuals, companies, industries, and economies. At thecrossroads between scholarship and practice, ICS is an exchange dedicated to helping new knowledge hit its mark in the world of work.
Contact:
Erica L. Groshen
Senior Economics Advisor
Institute for Compensation Studies
Authors:
Seung-Hun Chung
Erica L. Groshen
Linda Barrington
The Institute for Compensation Studies