Meet the Author

Timothy Dunne |

Vice President

Timothy Dunne

Timothy Dunne is a former vice president and economist of the Federal Reserve Bank of Cleveland.

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Meet the Author

Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

02.02.07

Economic Trends

Employment Cost Index

Tim Dunne and Brent Meyer

The Employment Cost Index (ECI), which measures the changes in employers’ wage, salary, and benefit costs, closed out 2006 showing moderate growth. For the entire year, total compensation rose 3.3 percent, wages and salaries rose 3.2 percent, and benefits rose 3.6 percent. Wages and salaries increased slightly more than they did in 2005, while benefits increased less. Indeed, benefits rose less in 2006 than in any year since 1999.

The past two years have witnessed some divergence in employment costs for workers in the private and public sectors. Compensation costs for state and local government workers grew at an average rate of 4.1 percent in the past two years, whereas private sector employment costs increased only 3.0 percent.

Employment cost patterns are different in the private and public sectors mainly because benefit costs are increasing less in the private sector. Unlike salary and wage growth, benefits growth across the two sectors has not tracked closely over time. In the last three years, the growth in benefit costs for private sector workers has fallen substantially; however, the fall in public sector benefit costs since 2004 has been considerably more muted, and currently, the growth of public sector benefit costs exceeds private sector growth by two percentage points.

ECI growth also varies across U.S. regions. From 2004 to 2006, the Midwest experienced, on average, the lowest growth in employment costs in the nation while the Northeast had the highest.