14
EXPLANATORY NOTE

The Employment Cost Index (ECI) is a measure of the change in the cost of
labor, free from the influence of employment shifts among occupations and
industries. The compensation series includes changes in wages and salaries
and employer costs for employee benefits. The wage and salary series and the
benefit cost series” provide the change for the two components of compen-
sation.

Wages and salaries are defined as the hourly straight-time wage rate or,
for workers not paid on an hourly basis, straight-time earnings divided by the
corresponding hours. Straight-time wage and salary rates are total earnings
before payroll deductions, excluding premium pay for overtime and for work on
weekends and holidays, shift differentials, and nonproduction bonuses such as
lump-sum payments provided in lieu of wage increases. Production bonuses,
incentive earnings, commission payments, and cost-of-living adjustments are
included in straight-time wage and salary rates.

Benefits covered by the ECI are: Paid leave (vacations, holidays, sick
leave, and other leave); supplemental pay (premium pay for overtime, shift
differentials, and nonproduction bonuses such as lump-sum payments provided in
lieu of wage increases); insurance benefits (life, health, and sickness and
accident); retirement and savings benefits (pension and other retirement plans
and savings and thrift plans); legally required benefits (social security,
railroad retirement and supplemental retirement, railroad unemployment
insurance, Federal and state unemployment insurance, workers' compensation,
and other legally required benefits such as state temporary disability); and
other benefits (severance pay and supplemental unemployment plans).

The ECI provides data for the civilian economy, which includes the total
private economy, excluding farms and households, and the public sector,
excluding the Federal government. The private industry series and the state
and local government series provide data for the two sectors separately.

Each quarter, straight-time average hourly wage and salary rates and
benefit cost data (cents-per-hour-worked) are collected from a probability
sample of nearly 23,000 occupations within 4,400 sample establishments in
private industry and about 6,000 occupations within 1,000 sample
establishments in state and local governments. Data are collected for the pay
period including the 12th day of the survey months of March, June, September,
and December. ECI statistics are neither annualized nor adjusted for seasonal
influences. .

1 The benefit cost indexes provide the change in the cost of benefits to a
fixed labor force. They are not price indexes for a fixed market basket of
benefits. Therefore, the indexes will change as a result of either a change
in the price of benefits provided (for example, higher pay for holidays) or a
change in the benefits (for example, an additional holiday).


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United States
News =="
y of Labor

Bureau of Labor Statistics Washington, DC. 20212

Technical, historical contact: USDL: 90-29
Wayne Shelly (202) 523-1165

TRANSMISSION OF MATERIAL IN THIS RELEASE
Media contact: IS EMBARGOED UNTIL 8:30 A.M. (EST)
Kathryn Hoyle (202) 523-1913 THURSDAY, JANUARY 25, 1990

EMPLOYMENT COST INDEX - DECEMBER 1989

The Employment Cost Index (ECI) rose 5.0 percent for the year ended in
December 1989, the U.S. Department of Labor's Bureau of Labor Statistics
reported today. The December 1989 ECI stood at 152.8, based on June 1981=100.
The ECI measures changes in compensation costs--wages, salaries, and employer
costs for employee benefits. It is not seasonally adjusted.

The 5.0 percent rise in compensation costs for the year ended in December
1989 equaled the increase recorded in 1988. Compared with a year ago,
compensation cost gains were higher for state and local government workers (6.2
percent, up from 5.6 percent in 1988), but about the same for private industry
workers (4.8 percent in 1989 and 4.9 percent in 1988). (See table 1.)

The compensation cost increases in private industry in 1989 (4.8 percent)
reflect wage and salary gains (4.2 percent) and benefit cost increases (6.1
percent). The table below shows over-the-year changes in private industry
compensation since December 1986.

12-month percent changes in the ECI, private industry workers

12-months Compensation Wages and Benefit
ended costs salaries costs
1986 Dec. 3.2 3.1 3.4
1987 March 3.1 3.2 2.9
June 3.0 3.0 3.3
Sept. 3.3 3.3 3.1
Dec. 3.3 3.3 3.5
1988 March 3.9 3.3 5.8
June 4.5 3.7 6.4
Sept. 4.5 3.7 6.7
Dec. 4.9 4.1 6.8
1989. March 4.6 4.2 5.4
June 4.5 4.1 5.6
Sept. 4.7 4.4 6.0
Dec. 4.8 4.2 6.1



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7


15

The sample establishments are classified in industry categories based on
the 1972 Standard Industrial Classification (SIC), as defined by the U.S.
Office of Management and Budget.

Within an establishment, specific job categories are selected to
represent broader occupational definitions. Since June 1986, the jobs have
been classified according to definitions used in the 1980 Census. Prior to
June 1986, they were classified according to the 1970 Census. Differences
between the two classification systems are slight, as indicated in the article
"Introducing new weights for the Employment Cost Index," in the June 1985

issue of the Monthly Labor Review.

Fixed employment weights are used each quarter to calculate the most
aggregate indexes--civilian, private, and state and local governments. These
fixed weights are also used to derive all of the industry and occupation
series indexes. Since June 1986, employment counts from the 1980 Census have
been used as weights. Prior to June 1986, employment counts from the 1970
Census were used.

For the series based on bargaining status, region, or area size,
employment data are not available from the Census. The employment weights are
reallocated within these series each quarter based on the current ECI sample.
The indexes for these series, consequently, are not strictly comparable to
those for the aggregate, industry, and occupation series. A fuller
explanation of the calculation of index numbers appears in an article,
"Estimation procedures for the Employment Cost Index," in the May 1982 issue

of the Monthly Labor Review.

The costs per hour worked of compensation components, based on March 1989
data from the ECI, are published in a separate news release titled "Employer
Costs for Employee Compensation - March 1989." A description of the cost
levels is provided in the article "Analyzing employers' costs for wages,
salaries, and benefits" in the October 1987 issue of the Monthly Labor Review.
The cost levels, which are published annually in mid-June, are calculated with
current employment weights, rather than the fixed 1980 Census weights used in
computing the ECI. Therefore, year-to-year changes in the cost levels will
usually differ from those in the ECI.

More detailed information on the ECI is available in several sources.
These include an annual bulletin, Employment Cost Indexes and Levels, 1975-89,
(Bulletin 2339); a chapter in the Handbook of Methods (Bulletin 2285 :
"The Employment Cost Index;" and several articles published in the Monthly
Labor Review. The annual bulletin is available from the Superintendent of
Documents, U.S. Government Printing Office, Washington, D.C. 20402, or Bureau
of Labor Statistics, Publications Sales Center, P.0. Box 2145, Chicago,
Illinois 60690. Reprints of the articles plus other descriptive pieces and a
complete historical listing are available upon request. ECI historical data
are also available on data diskettes formatted for use with Lotus 1-2-3,


Changes in wages and salaries and benefit

costs, private industry, 1980-89

12-month 12—month
change percent change
16 16
14 - 4°14
12 - 7 12
10 F + 10
abt 48
e- 46
4 Wages and salaries 14
2e 42
o Lette tts 9g

1980 1981 1982 1983 1984 1985

1986

1987

1988

1989



2

Benefit cost increases for private industry workers in 1989 (6.1 percent)
were lower than the 1988 gains (6.8 percent) because the social security tax
rate did not rise in 1989 whereas it rose 5.0 percent in January 1988. Rising
health insurance costs, however, kept benefit cost increases in 1989 well above
the gains in wages and salaries.

December 1988-89 wage and salary increases in private industry were lower
for workers in goods-producing industries (3.9 percent) than for those in
service-producing industries (4.5 percent). Service-producing industry
divisions registering above average wage and salary gains were wholesale trade
(9.1 percent), finance, insurance, and real estate (5.1 percent), and service
industries (4.8 percent), which include hospitals (6.6 percent). The gains in
wholesale trade and finance, insurance, and real estate were heavily influenced
by volatile commission earnings of sales workers.

Over-the-year wage and salary gains in private industry were higher for
white-collar occupations (4.7 percent) than for either blue-collar occupations
(3.5 percent) or service occupations (3.6 percent). Pay increases for white-
collar occupational groups ranged from 3.5 percent for executives,
administrators, and managers to 7.0 percent for sales workers. In contrast,
pay gains for blue-collar occupational groups ranged from 2.6 percent for
transportation and material moving occupations to 3.8 percent for craft workers
and for laborers. (See table 4.)

December 1988-89 wage and salary advances for nonunion workers in private
industry (4.5 percent) exceeded those for union workers (3.1 percent), as they
have since 1983-84. This pattern held in both goods-producing and service-
producing industries. (See table 7.) With benefits included in the
comparison, compensation cost increases also were higher for nonunion workers
(5.1 percent) than for union (3.7 percent). (See table 6.)

For state and local government workers, pay gains for the year ended in
December 1989 (5.3 percent) were higher than those a year ago (4.8 percent).
2 December 1988-89 gains were highest in hospitals (6.1 percent). (See table
2.

RIKI IKI I IKI IKI AIK III IIS III III I II III IIIS ISK IA III ISI IIIA S ISI IIIA III IAI K.

Beginning with the ECI news release for March 1990, the base for ECI
series will be June 1989=100, rather than June 1981=100. This change
is being made so that all ECI series--including many new series that
began after June 1981--are published with reference to the same base
(June 1989=100). The change will not affect the fixed employment

weights being used, which will continue to be based on the 1980 census.
HIKARI ERE EERIE KIKI KIIIIAI IAI IIIA III IIIA III AAAI IIA IAAI IAI IIA

OF OO OF
OF Oe OF Ob OF

ECI data for March 1990 will be released on Tuesday, April 24, 1990,
at 8:30 A.M. (EDT).


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