The U.S. Bureau of Labor Statistics Employment Cost Index says wages, salaries and benefits grew at an annual rate of 2.2 percent in 2014.
Economists were happy to see improvements in an index regarded as a key reflection of the labor market. “If I were going to pick one measure to look at, it would be this one,” says Mark Zandi, chief economist at Moody’s Analytics. “This is giving us a pretty definitive read on what’s going on in the labor market with regard to wages and compensation.”
Zandi likes the index because it gives a consistent look at compensation over time. The Bureau of Labor Statistics surveys a rotating slate of firms on their employment costs, and unlike another measure of hourly wages, the index doesn’t get skewed as much by shifts in employment into, say, low-wage industries or occupations.
Employer costs are still growing slower than they were before the Great Recession. But the growth rate last year did outpace inflation, which is clocking in around 1.3 percent.
Workers’ compensation is improving as the unemployment rate falls, the available pool of workers shrinks and employers have to start spending more to get new workers in the door. “We’re not all the way back to full-employment yet, but we’ve been for some time moving in that direction, and if we continue to move in that direction we’ll see more upward pressure on wages,” says Alan Krueger, Princeton University economist.
The benefits side of the Employment Cost Index grew faster last year than wages and salaries, which breaks with recent trends, Krueger says. “We had seen health care costs growing so slowly – really exceptionally slowly – compared to the history of health care cost growth; benefits were not growing faster than wages [again] until recently,” he says.
Improvements in the benefit side of the equation will matter less to workers in the short-term, says Till von Wachter, a UCLA economist. He says the wage and salary spikes will have more immediate consequences. “Higher wages could lead to higher spending,” he says.