July 28, 2023

The employment cost index for civilian workers climbed at a 4.1% rate in the second quarter after rising 4.6% rate in the first quarter   Over the course of the past year it has risen 4.5%.

With the unemployment rate currently at 3.6% and full employment presumably about 4.0%, upward pressure on wages and benefits should continue to be significant because of a very tight labor market.  An increasing number of firms of all sorts are boosting  compensation of all types to get enough bodies to boost production.  This series dates back to 2001 and this is, by far, the most upward pressure on labor costs that we have seen in the past 22 years.

Wages climbed at a  3.8% pace in the second.t quarter after rising 4.6% in the first quarter.  Wages have risen 4.6% in the past year which is the fastest growth rate in 22 years.  This accelerated rate of increase in wages should continue in the quarters ahead.

Benefits climbed at 3.8% pace in the second quarter after rising 4.9% rate in the first quarter.  Over the past year benefits have risen 4.2%.

Labor costs have risen 4.5% in the past year which is slightly faster than the increase in the core PCE.  However, real wages previously declined for two years.  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 earlier loss of declining real wages..  A 4.5%  increase in wages is totally inconsistent with the desired 2.0% inflation rate.

Stephen Slifer


Charleston, SC