January 31, 2024

The employment cost index for civilian workers climbed at a 3.5% rate in the fourth quarter after rising 4.3% rate in the second quarter   Over the course of the past year it has risen 4.2%.

With the unemployment rate currently at 3.7% and full employment presumably about 4.0%, upward pressure on wages and benefits should continue  because of the tight labor market. Many firms are still boosting  compensation to get enough bodies to boost production.  This series dates back to 2001 and this is, by far, the upswing in labor costs in 2021 and 2022 is the most we have seen in the past 22 years.  The good news is that the intense pressure is beginning to abate, but it still has a long ways to go.

Wages climbed at a  3.7% pace in the fourth quarter after gaining 4.8% in the third quarter.  Wages have risen 4.3% in the past year which remains rapid but it does appear to be moderating.

Benefits climbed at 2.7% rate in the fourth quarter after climbing at a 3.8% pace in the third quarter.  Over the past year benefits have risen 3.8%.  The growth in benefits remains rapid but it, too, is subsiding.

Labor costs have risen 4.2% in the past year.  However, real wages declined for two years as inflation rose more quickly than wages.  As a result, workers in general, as well as unions, will continue to seek sizable wage gains in the quarters ahead to make up for some of the drop in real wages..  A 4.2%  increase in wages is inconsistent with the desired 2.0% inflation rate.

Stephen Slifer


Charleston, SC