Employer Costs for Q1 2018

On June 8 BLS released the data on March Employer Costs for Employee Compensation (ECEC). This dataset offers a different perspective on labor costs than the ECI. Like the ECI, the numbers come from both private and state and local employers, and are collected in the last month of a quarter (thus, both are normally referred to as “quarterly” series). The ECI gives a picture of compensation structures: how much compensation costs would change if all workers held the same positions as in a set index month—it is, in effect, a Laspeyres index of compensation. The ECEC is more akin to a deflator: it is a measure of hourly compensation costs. It can be likened to the monthly average hourly wage measure, but includes non-wage compensation, and presents much more detail.

According to the ECEC, in March 2018 aggregate “civilian” (this is the term often used, though federal workers are not included) employee compensation averaged $36.32 per hour: $24.77 in wages, and $11.55 in benefits. The aggregate figure was 3% higher than in March 2017, wages were 2.8% higher, and benefits had risen 3.3%. All these increases were well within the ranges of the last few years (since 2014). Thus, there was at that point no appreciable sign of significant acceleration in aggregate hourly compensation. In the private sector, the March figures for hourly total compensation, wages, and benefits were $34.17, $23.76, and $10.41. These were, respectively, 3.2%, 3.0%, and 3.5% higher than their March 2017 values. In no case was there any indication of marked acceleration. Hence, at least as of March, the much-touted, feared (or hoped-for), pickup in compensation really was not visible in this very comprehensive data set. Of course, unlike the ECI, and like average hourly earnings, the ECEC numbers do not correct for changes in the mix of workers. If employment growth has been more rapid in low-compensation than high-compensation jobs, ECEC growth will be held back.

A comparison of the private and state and local sectors offers some insight into the roots of state and local budget worries. First, average compensation is much higher in government than in private positions: the March 2018 figure for state and local government was $49.40 per hour, 36% above the comparable private sector figure (this ratio has been around that level in the quarter-century or so the data are available). It’s hard to directly compare the nature of government and private positions (for instance, there aren’t many private sector firefighters, and police have very different duties and responsibilities than private security), so one should not, perhaps, make much of the aggregate gap. What is striking, though, is the very different nature of compensation in the public and private sectors. The compensation gap disproportionately reflects benefits: Average hourly public sector wages are about 25% higher than in the private sector, while the benefits gap in March was a whopping 60.1%.

The difference in benefits between the public and private sectors is long-standing (we all likely know people who work in government for the benefits). Basically, the public sector continues to provide traditional defined benefit pensions, and government employee health benefits tend to be richer than in the private sector. In March 2018 the combined cost of health and defined benefit pensions to state and local governments amounted to $11 an hour, compared to $3.11 in the private sector, accounting for about half the difference between aggregate public and private hourly compensation. With chronic concern about rising health costs, and the ongoing need to step-up contributions to underfunded pension plans, these components of compensation will continue to present major ongoing problems for government finance.