Increase in worker pay and benefits match fastest pace since recession, ECI shows

The numbers: Workers are reaping the benefits of the lowest unemployment rate since the late 1960s: Wages, salaries and benefits are rising at the fastest rate in a decade.

The employment cost index rose 0.8% in the third quarter running from the beginning of July to the end of September, the government said. Economists polled by MarketWatch had forecast a 0.7% increase.

The 12-month increase in the ECI was unchanged at 2.8%, but it’s still at a 10-year high.

Private-sector wages and salaries grew even faster. They rose 3.1% in the 12-month period ending in September, topping 3% for the first time since 2008.

What happened: Paychecks and benefits reversed roles in the third quarter. Wages and salaries grew much faster in the summer than in the spring, but benefits grew more slowly.

Wages make up about 70% of employment costs. They rose 0.9% in the third quarter
Benefits make up the rest of worker compensation. They increased 0.4%.

Increases in compensation over the last 12 months ranged from 1.9% for workers in manufacturing to 4.8% for those in information services such as media, public relations and entertainment.

The ECI reflects how much companies, governments and nonprofit institutions pay employees in wages and benefits.

Big picture: A strong economy that’s been growing for more than nine years has created nearly 20 million new jobs. Now the tightest labor market in decades is finally leading to higher wages for many though not all workers.


That’s the good news. The bad news is that some of gains in worker compensation have been eaten up by higher inflation.

Another worry: The Federal Reserve is moving to raise interest rates to keep inflation from spiraling higher. That could lead to slower economic growth as early as next year and limit the gains by employees.

What they are saying? “The ECI measure has been rising steadily since early 2016, but the trend remains modest compared with its pre-crisis history, particularly in light of how fast the unemployment rate has declined and the continued rise in employment,” said economist Blerina Uruci at Barclays.