Wage and Benefit Growth Hits Historic Low

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

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

Adjusted for inflation, wages and benefits fell 1.3%, after rising 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 the cost of labor independent of 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 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 few years.

Private employers' health-insurance costs rose 4.4% in 2009, after increasing 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 this reflects, in part, employers' reducing their contributions to employees' health insurance or switching to lower-cost health plans.