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Compensation Costs

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Measures of compensation growth are sensitive to differences in method: Both the Employer Costs for Employee Compensation (ECEC) and the Employment Cost Index (ECI) gauge the cost of labor; however, the ECI uses fixed weights to remove any cost changes related to labor reallocation across occupations and industries, whereas the ECEC uses current employment weights. During the 1990s, ECI-measured compensation growth exceeded ECEC-measured growth, partly because of a shift toward lowerpaying jobs in private goods-producing and private service-providing industries during the decade. More recently, growth in the ECEC (which measures the average cost per hour worked) exceeded the ECI, a reflection in part of the decrease in hours worked by lower-wage and salaried workers during the most recent recession. Since 1997, compensation growth has generally outpaced the inflation rate—in 2004, total compensation grew about 4.0%, and prices rose about 3.7%.

Suggested citation: “Compensation Costs,” Federal Reserve Bank of Cleveland, Economic Trends, no. 05-04, pp. 13, 04.01.2005.

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