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Economy in Brief

Employment Cost Growth Ticks Up in Q4
by Gerald D. Cohen  January 29, 2021

• Overall compensation increased 0.7% in Q4; year-on-year growth accelerates slightly to 2.5%.

• Wages and salaries up 0.9% (2.6% y/y) while benefits gain 0.6% (2.3% y/y).

The employment cost index (ECI) for civilian workers rose 0.7% in the fourth quarter of 2020, faster than the 0.5% consensus from the Action Economics Forecast Survey. Year-on-year growth of total compensation ticked up to 2.5% in Q4 from 2.4% in Q3. The third quarter year-on-year growth was the slowest in three years. Compensation increased 2.8% y/y in 2020Q1; the previous cycle high was 2.9% in 2018Q4.

Wage and salaries increased 0.9% in 2020Q4 (2.6% y/y), a slight acceleration from the 2.5% y/y gain in Q3. Benefits grew 0.6% (2.3% y/y), the same y/y growth as Q3. Benefits increased 2.1% y/y in Q1, the slowest growth since the end of 2016.

Private sector compensation, wages and salaries, as well as benefits showed a similar pattern to all civilian workers (see table and graphs below). Compensation in goods- and service-producing industries grew 0.7% and 0.8% respectively in Q4 (2.4% and 2.6% y/y), a pickup from the year-on-year growth experienced in Q3. Overall pay for non-incentive paid occupations increased 0.6% (not seasonally adjusted) and 2.5% y/y, slightly higher than the 2.4% y/y in Q3.

The employment cost index, which measures the change in the cost of labor, free from the influence of employment shifts among occupations and industries, is available in Haver's USECON database. Consensus estimates from the Action Economics survey are in Haver's AS1REPNA database.

Civilian Workers (% chg) Q4'20 Q3'20 Q2'20 Y/Y 2020 2019 2018
Compensation 0.7 0.5 0.5 2.5 2.6 2.7 2.8
 Wages & Salaries 0.9 0.4 0.4 2.6 2.8 2.9 2.9
 Benefit Costs 0.6 0.6 0.8 2.3 2.2 2.4 2.7
Private Industry Workers (% chg)    
Compensation 0.9 0.5 0.4 2.6 2.6 2.7 2.9
 Wages & Salaries 0.9 0.5 0.4 2.8 2.9 3.0 3.0
 Benefit Costs 0.6 0.5 0.7 2.1 1.9 2.0 2.6
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