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~ United States
( News Department &
y of Labor.

Bureau of Labor Statistics Washington, D.C. 20212

Technical, historical contact: USDL: 89-36

Felicia Nathan (202) 523-1165

Media contact: FOR RELEASE: 10:00 A.M. E.S.T.
Kathryn Hoyle (202) 523-1913 Tuesday, January 24, 1989

EMPLOYMENT COST INDEX - DECEMBER 1988

. The Employment Cost Index (ECI) rose 5.0 percent for the year ended in December
1988, the U.S. Department of Labor's Bureau of Labor Statistics reported today. The
December 1988 ECI stood at 145.5, 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 1988
exceeded the 3.6 percent increase recorded in 1987. This pattern held for both state
and local government (5.6 percent, up from 4.4 percent in 1987) and private industry
workers (4.9 percent, up from 3.3 percent). (See table 1.) .

The compensation cost increase in private industry in 1988 (4.9 percent) reflects
arise in the employer's social security tax rate in January 1988 (from 7.15 to 7.51
percent), rising health insurance costs throughout the year, and wage and salary
gains. The table below shows over-the-year changes in private industry compensation
costs since December. 1985.

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

12-months Compensation Wages and Benefit
ended costs salaries costs
1985 “Dec. - 3.9 4.1 3.5
1986 = March 3.8 3.9 3.2
June 3.8 3.7 3.5
Sept. 3.2 3.1 3.3
Dec. 3.2 3.1 3.4
1987 March 3.1 3.2 2.9
dune 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
dune 4.5 3.7 6.4
Sept. 4.5 3.7 6.7
Dec. 4.9 4.1 6.8



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13
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
Jump-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
Teave, 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 disabi lity); 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 about 18,000 occupations within 3,600 sample establishments in
private industry and about 3,500 occupations within 700 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

nf luences.

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.

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).



Changes in wages and salaries and benefit costs, private industry, 1980-88
percent change percent change
16 16
14 + z 4 14
12 7 4 12
10 F 4 10
BE 4 8
6r 46
45 Wages and salaries 44
ab 42
ce) [or a ee ° |

1980 1981 1982 1983 1984 1985 1986 1987 1988



2

The ECI shows that wages and salaries rose 4.1 percent in private industry for
the year ended in December 1988. Excluding sales workers, pay gains averaged 3.7
percent. Sales worker pay, heavily influenced by volatile commission earnings, rose
6.6 percent in 1988, up from 1.0 percent a year ago.

Wage and salary gains in private industry were lower for workers in goods-
producing industries (3.1 percent) than for those in service-producing industries
(4.7 percent) in 1988. Service-producing industry divisions which registered wage
and salary gains above the 4.7 percent average increase were finance, insurance, and
real estate (6.3 percent), retail trade (5.2 percent), and service industries (5.0
percent), which include hospitals (5.9 percent).

Wage and salary increases in private industry for the year ended in December
1988 were higher for white-collar occupations (4.7 percent) and service occupations
(4.4 percent) than for blue-collar occupations (3.1 percent) for the year ended in
December 1988. Pay gains for white-collar occupational groups ranged from 3.7
percent for executives, managers, and administrators to 6.6 percent for sales
workers. In comparison, pay gains for blue-collar occupational groups ranged from
2.9 percent for precision production, craft, and repair workers to 3.4 percent for
laborers. (See table 4.)

December 1987-88 wage and salary advances for nonunion workers in private
industry (4.5 percent) exceeded those for union workers (2.2 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
(3.9 percent). Within goods-producing industries, however, compensation cost
increases were slightly higher for union workers (4.5 percent) than for nonunion
workers (4.3 percent). (See table 6.)

For state and local government workers, pay gains for the year ended in December
1988 (4.8 percent) were higher than those a year ago (4.2 percent). The December
1987-88 gains were highest in elementary and secondary schools, averaging 5.7
percent. (See table 2.)

FIST III IO III III II TO I IT ISI IIIS IAI A A A IS A I

* This release includes for the first-time, measures of change in compensation *
* costs and in wages and salaries for production and nonsupervisory workers in *
* private industry. (See tables 3 and 4.) This series has the same industry *~
* and occupational coverage as the Hourly Earnings Index, which was discontin- *

* ued in January 1989. *
EIEIO ITT TOO III III I IIIS ITSO I I OOS I IIIS SAI ISAS ASAI IIIS GH

ECI data for March 1989 will be released on Tuesday, April 25, 1989,
, at 10:00 A.M. E.D.T.



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SAINVTYS ONY S39VM



— *
14

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
dune 1986, they were classified according to thé 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 1988
data from the ECI, are published in a separate news release titled "Employer
Costs for Employee Compensation--March 1988." A description of the cost
Tevels is provided in the article “Analyzing employers' costs for wages,
salaries, and benefits" in the October 1987 issue of the Monthly Labor Revie.
The cost levels, which are published annually in mid-dune, 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 a chapter in the BLS Handbook of Methods (Bulletin 2285), "The
Employment Cost. Index," and several articles published in the Monthly Labor
Review. Reprints of these articles plus other descriptive pieces ant a
CompTete historical listing are available upon request. ECI historical data
are also available on data diskettes formatted for use with Lotus 1-2-3,

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