Wage and Benefits Grow Slower Than Inflation

Wage and benefit costs, both before and after adjusting for inflation, grew more slowly 2009 than any year since the U.S. government began tracking data in 1982 as double-digit unemployment weakened workers’ ability to command higher pay.

Over the past 12 months, the cost of wages and benefits for workers other than those employed by the federal government rose 1.5%, according to the Labor Department’s employment cost index. Over the same period, consumer prices rose 2.7%.

Adjusted for inflation, wages and benefits fell by 1.3% after rising by 2.8% in 2008, the first year of the recession. The inflation-adjusted cost of wages and benefits at the end of 2009 stood just 1.1% higher than at the end of the previous recession in 2001, the Labor Department said.

The Employment Cost Index measures of the cost of labor free from the influence of changes in compensation caused when high-wage sectors grow more – or less — rapidly than low-wage sectors. Unlike widely cited data on wages, the index includes the cost of benefits, which account for about 30% of total compensation costs.

Before adjusting for inflation, the index rose 0.5% in the fourth quarter, slightly higher than the 0.4% increase in third quarter. “The weak labor market will help keep inflationary pressures benign, said economist Anika Khan of Wells Fargo Securities. “As such, the Federal Reserve continues to have the flexibility to keep short-term interest rates at the current level.”

State and local government workers’ compensation in 2009 grew by 2.4%, twice the pace of the 1.2% increases in the private sector. State and local government employees compensation has outpaced private-sector increases for the past several years.

Private employers’ health insurance costs rose 4.4% in 2009, after increasing by 3.5% the year before. The 2009 increase, though, was the second lowest rate of increase in more than a decade, according to the survey. The Labor Department noted that that this reflects, in part, employers’ reducing their contributions to employees’ health insurance or switching to lower-cost health plans. It added that the data in this part of its quarterly survey isn’t as reliable as the rest of the report.