Wage and benefits gains kicked up slightly in the first quarter of the year, new data out Friday found, showing employers are continuing to stay aggressive in keeping workers happy while also indicating inflation pressures continue.
Overall, compensation costs for civilian workers climbed 1.2 percent, seasonally adjusted, in the first quarter, up from the 1.1 percent growth in the fourth quarter of 2022, the U.S. Bureau of Labor Statistics (BLS) reported April 28 in its quarterly Employment Cost Index (ECI).
Labor compensation costs in the U.S. for private sector workers—including pay and benefits—increased 4.8 percent year-over-year, the same as the 4.8 percent increase a year earlier, the ECI found. Comparatively, the fourth quarter index, released in January, found that wage growth grew 5.1 percent year-over-year.
The ECI found that wages and salaries for private-sector workers—the pay component—rose 5.1 percent for the 12 months ending in March, up from a 5 percent increase a year earlier. Meanwhile, the cost of benefits in the private sector rose 4.3 percent for the same 12-month period, an increase from a 4.1 percent increase a year earlier.
Compensation costs for state and local government workers increased 4.9 percent for the 12-month period ending in March 2023.
The index, measuring the change over time in labor costs and released quarterly by the agency, is considered an important gauge of inflation. Economists say higher wages can contribute to overall inflationary pressures, which the Federal Reserve is trying to bring down. The Fed watches the Employment Cost Index, as well as the BLS Consumer Price Index, closely as it determines interest rates. Lawrence Summers, former secretary of the U.S. Treasury, said recently at the Morningstar Investment Conference that the ECI is a key economic indicator.
The ECI showing slight wage growth comes as inflation has been steadily cooling in recent months. The latest Consumer Price Index (CPI) for all items rose 5 percent for the 12 months ending in March, before seasonal adjustment, the BLS reported April 12. That's down from a 40-year high of 9.1 percent in June, although inflation remains still stubbornly high and is still taking its toll on employees.
As a result of both high inflation and the competitive job market, employers have turned to more aggressive raises. Yet wage growth still has largely lagged behind the rate of inflation by a fairly significant amount, offering employees little reprieve.
Although employees are still feeling the sting of inflation and expecting higher pay increases this year, recent surveys indicate that employers are beginning to cool more aggressive pay increases. Payscale, for instance, found that while employers are still planning on pay hikes this year, they will likely be less competitive than they were last year.