Introduction to Labor Costs in the United States
The United States labor costs experienced a moderate increase in the first quarter of 2019, as economic uncertainty stemming from tariffs cooled labor demand. The Employment Cost Index (ECI) rose by 0.9% in the first quarter, following a similar increase during the October-December period, according to the Bureau of Labor Statistics (BLS) within the Department of Labor.
Economists’ Forecasts and Historical Context
Economists surveyed by Reuters had predicted a 0.9% advance in the ECI. Over the past twelve months leading up to March, labor costs increased by 3.6%, down from a 3.8% annual growth rate in the year ending December. Policymakers view the ECI as a reliable gauge of labor market slack and an indicator of underlying inflation, considering its accounting for shifts in job composition and quality.
Job Market Trends
Government data released on Tuesday showed there were 1.02 job openings for every unemployed individual, slightly below February’s 1.06 ratio. The tariffs imposed by President Donald Trump have dampened business sentiment, raising concerns among some economists about potential job losses. Economists anticipate the Federal Reserve will further lower interest rates this year.
Wage and Salary Developments
Wages and salaries, which constitute the majority of labor costs, rose by 0.8% in the previous quarter after increasing by 1.0% in the fourth quarter. Annually, wages advanced by 3.5%, slowing from the previous quarter’s 3.8%. After adjusting for inflation, overall wages increased by 1.1% in the twelve months ending March, up from a 0.9% gain in the previous quarter.
Private Sector Wages and Salaries
Private sector wages and salaries increased by 0.8% in the last quarter, with a 3.4% annual growth rate in the twelve months through March, down from 3.7% in the fourth quarter.
State and Local Government Wages
Wages for state and local government workers rose by 0.8% in the last quarter, following a 1.1% increase in the October-December period. Over the twelve months through March, these wages grew by 4.1%.
Benefits and Compensation
Total compensation for all workers increased by 1.2% in the last quarter, with a 0.8% rise in the fourth quarter. Over the twelve months through March, total compensation advanced by 3.8%, following a 3.6% increase in the October-December period.
Key Questions and Answers
- Q: What is the Employment Cost Index (ECI)?
A: The ECI is a measure of labor costs for private industry workers, excluding managers. It tracks changes in wages and salaries over time.
- Q: Why are tariffs impacting labor costs?
A: Tariffs imposed by President Trump have created economic uncertainty, which in turn has cooled labor demand and moderated wage growth.
- Q: How do policymakers view the ECI?
A: Policymakers consider the ECI a reliable gauge of labor market slack and an indicator of underlying inflation, as it accounts for shifts in job composition and quality.
- Q: What are the recent trends in wages and salaries?
A: Wages and salaries have increased moderately, with annual growth rates of 3.5% and 1.1% (adjusted for inflation) in the most recent periods.
- Q: How have benefits and compensation changed?
A: Total compensation for all workers has risen by 1.2% and 3.8% annually, respectively, in the most recent periods.
