This relationship is illustrated in the following tabulation
which shows average wage and salary rates and employer
insurance costs per hour worked in selected industries,
March 1987:

Wages and — Insurance

salaries cost

Private industry .....00..0..05 $9.83 $0.72
‘Transportation and

public utilities 13.77 1.32

Wholesale trade . 11,24 80

Man i 10.77 1.06

Servi . 9.34 53

Retail rade 6.07 35

By occupational group. Employer compensation costs
also varied substantially by occupational group, being
highest for managers and lowest for service workers.* (See
chart 2.) Compensation costs per hour worked averaged
more for white-collar workers ($15.56) than for blue-collar
workers ($13.43), with wages and salaries accounting for
the difference. Wages and salaries for white-collar workers
($11.61) were 24 percent higher than for blue-collar work-
ers ($9.38). Benefit costs were about the same for both
($3.95 and $4.05, respectively). Compensation costs for
service workers averaged $6.43 per hour worked, less than
half that for white-collar or blue-collar workers. As a pro-

portion of total compensation, benefit costs for service
workers (22.8 percent) were less than those for either white-
colar workers (25.4 percent) or blue-collar workers (30.2
percent). Insurance costs per hour worked for service work-
ers (27 cents) were about a third of those for white-collar
workers (77 cents) and blue-collar workers (87 cents).

Differences among occupational categories in employer
costs for some benefits are related to the work performed.
The following tabulation shows costs per hour worked for
selected benefits, by occupation, March 1987:

White-collar Blue-collar Service

Workers’ compensation $0.11 $0.39 $0.16
State unemployment .. a 5 10
Premium pay 08 34 04
Shift pay 03 06 02

The costs of workers’ compensation, State unemployment
insurance, premium pay, and shift differentials were higher
for blue-collar workers than for either white-collar or serv-
ice workers. On average, occupational injury and unem-
ployment rates are higher for blue-collar workers, exerting
an upward influence on unemployment insurance and work-
ers’ compensation rates for these workers. Shift work and
overtime tend to be a more integral part of blue-collar work,
so naturally, shift differentials and premium pay are pro-
vided more frequently to blue-collar occupations. (These

in private industry, March 1987

[In percent]

Wages
and
salaries

73.2

Chart 1. Relative importance of components of employer costs for compensation

Other benefits

Supplemental
Pay

Pensions and
savings

Insurance

Paid leave

Legally required
benefits



MONTHLY LABOR REVIEW October 1987 ¢ Analyzing Employers’ Compensation Costs

pensation, selected major occupational groups, March

Table 4. Employer costs for employee compensation ber hour worked, relative errors,’ and costs as a percent of total com-

White-collar workers Blve-coltar workers

Private Adminis- Precision | Machine | Handlers,

i age | exam | Sa wae’ | eer, | taage | re, | se
Compensation Total? d “ support, | Total tion, assom= am, | cleaners,
‘component Specie, | tative, | Including craft, lors, material | ‘helpers,
waneger erical repair | inspectors | "2 | Inborers

ete Rela- Relee Relae Rela Fle Rola Rela. Rel Role ete

Cost | tive | Cost | tive | Cost | tive | cost | tive | Cost | tive | Cost | tive | Cost | tive | Cost | tive | Cost | tive | Cost | tive | Cost | tve

eror error error error error error error enor error error error

eee)
8

Total compensation |$13.42} 1.1 |$15.56] 1.6 [$1981] 25 jszae1! 27 [$1094] 15

12 | 1161] 18 | 1466] 25 | 1786] 30 | 791] 14

14) 395] 14] 5.15] 27 | 595] 24 | 304] 19
15 | 120) 19 | 166] 36] 199] 28 | 85] 28

47 | s2l61 | 4/105) 20] 39
28

22] s7}2e| 25) 61 | 98) 45] 42] 42
9] 12} 41] tao} 20] 155} 14 | 95] 14

$13.43] 1.3 /$16.85) 1.8 |$1244) 1.8 [$1383] 24 | $981] 30 | $643] 16

938] 14 | 11.92] 16 | 844) 16 | 965] 22 | 693} 27 | 496] 16
405] 19 | 493] 25 | 400] 25 | 417] 32] 280] 40} 147] 24
2 5

47} as} $7144] 55/52] 39] 69 | 29| 63

137] 16 | 1.67] 23] 1.47] 19] 158] 34 | 108] 31] 69] 18

6a | oa}77| | | cals] m] | 03} a9] osfts4] osfos] | wm] wl a} ml w
Percent of total compensation
Total compensation | 100.0 1000 100.0 100.0 1000 100.0 100.0 100.0 100.0 100.0 1000
Wages and
salaries ..... 732 46 740 750 723 698 708 619 698 708 m2
Total benefits . 268 264 260 259 ar 902 202 324 902 294 228
Paid leave... 69 17 84 84 77 é4 58 7 61 52 47
Suplemenal
24 18 16 23 18 35 34 44 28 30 13
insurance 54 49 48 ay 65 64 59 75 61 85 42
Pensions
and savings 36 a7 43 a7 38 a7 4a 33 36 37 19
Legally
required .. 84 72 70 65 78 102 99 94 5 110 107
Other benefits? 4 4 4 4 4 2 2 3 4 4 a

1 The relative eror is the standard ertor expressed as a percent ofthe cost. We can be 95
percent confident the interval around the cost estimate bounded by two times plus and to times
minus the elaive eror contains the "tue cost.

2 Includes salesworkers, in addition to occupations shown separately.

® Includes severance pay, supplemental unemployment benefits, and merchandise discounts
in department stores,

4 Cost is $0.01 or less.
Nore: Because of rounding, components may not sum to total.

dent that the interval derived for each cost estimate from the
ci sample includes the “true” cost.

The standard error can also be expressed as a percent of
the estimate, that is, as the relative error. The relative error
is shown with each cost estimate in table 2 (page 8), table 3
(page 9), and table 4 (page 10). Table 2 shows, for example,

that total compensation for private industry workers aver-
aged $13.42 per hour worked with a relative error of 1.1
percent. That is, the approximate 95-percent confidence
interval is $13.42 plus and minus 2.2 percent (2 times 1.1
percent), or $13.12 to $13.72. At the 95-percent confidence
level, this range contains the “true” cost.

FOOTNOTES ——

1 For some individual benefits, the cost is not published. Individual
benefits with costs less than I cent per hour worked, such as severance pay
and supplemental unemployment benefits, are not provided, and life,
health, and sickness and accident insurance are reported as one cost. The
reason for combining insurance is that a large proportion of respondents
(approximately 25 percent) report the cost of these benefits together.

2. Goods-producing industries include mining, construction, and manu-
facturing. Service-producing industries include transportation, public utili-
ties, trade, finance, insurance, real estate, and services.

3 The wage rates presented in this article differ from the earings pub-
lished in the Bureau's Average Hourly Earnings series. The Average
Hourly Eamings series excludes executive, managerial, and administrative
employees in all industries and all white-collar employees in goods-

10

producing industries, white the Ect sample includes all occupational groups
in all industries. Also, the Average Hourly Earnings series measures gross
earnings, derived by dividing gross payroll by payroll hours, whereas
wages and salaries from the Ect are straight-time wages or, for workers not
paid on an hourly basis, earnings divided by corresponding hours, exclud-
ing supplemental pay. (Both the Average Hourly Earnings series and wages
and salaries from the ECI exclude nonproduction bonuses and lump-sum
payments.)

4 Service workers are found in a variety of industries and perform a
variety of duties, such as food, health, cleaning, and guard services. Serv-
ice industries, in contrast, consist of establishments which employ workers
from all occupational groups and have the function of providing services
for individuals and businesses and other agencies.



The annualized current cost in this example is the rate at
which each holiday is paid (8 hours of straight-time pay)
times the number of holidays provided under current plan
provisions. This annualized current cost is then divided by
the annual hours worked to yield the current cost per hour
worked. The formula for deriving the current cost is:

(number of holidays) x (hours of pay) x
(hourly wage rate) = annualized current cost;

annualized current cost + work hours per year. =
current cost per hour worked

Thus, in this example, the current cost at any time during
the first half of the year is:

10x8x$10 = $800;
$800 + 2,000 work hours = $.40

At any time during the second half of the year (after the
wage increase occurs), the current cost is;

10x8x$1l = $880;
$880 + 2,000 = $.44

The expenditure per hour worked, in contrast, is all
holiday pay during the year divided by the number of hours
worked—information that would not be available until the
year ended:

(5 holidays x 8 hours of pay X $10 hourly wage) +
(5 holidays X 8 hours of pay X $11 hourly wage)

= $840;

$840 + 2,000 annual hours worked =

$.42 per hour worked

Another factor that would affect current costs and past
expenditures differently in this example is a change in the
number of holidays per year. For example, the current cost
would reflect the higher cost of an added holiday at the point
the new holiday becomes effective. In contrast, the annual
expenditure would reflect a mix of the costs before and af-
ter the change becomes effective.

Example 2. A health insurance plan is provided all em-
ployees. The monthly premium for each employee is $120
for the first 6 months of a given year, and increases to $140
for the last 6 months. Each employee works 2,000 hours per
year.

The formula for deriving the current cost is:

(12 months) X (monthly premium) =
annualized current cost;

annualized current cost + work hours per year =
current cost per hour worked

In this example, the current cost at any time during the
first half of the year is the annual premium divided by the
annual hours worked:

12x $120 = $1,440;
$1,440 + 2,000 = $.72

The current cost at any time during the second half, with
the new premium rate, is:

12x $140 = $1,680;
$1,680+ 2,000 = $.84

The expenditure per hour worked, in contrast, is the total
premium paid over the year divided by hours worked—in-
formation that would not be available until the year ended:

(6 months x $120) + (6 months x $140) = $1,560;
$1,560+ 2,000 = $.78

Other factors that would cause differences between cur-
rent costs and past expenditures are the number of annual
hours the employee works, changes in eligibility require-
ments affecting the employee, or the introduction or elimi-
nation of a plan.®

Employment weights. The EcI uses fixed employment
weights from the 1980 census so that compensation cost
changes can be measured, free from the influence of em-

Table 1. Compensation cost ranges, by occupational groups within industries, March 1987
Finance,
‘Occupational: ‘Transportation, “ Wholesale Retail
youn puble utes’ | Wsuranes, | Construction | Manufacturing | MiGs Services oe
Executive, managerial, administrative . $25 or more S2ormore | $25 ormore | $Z5ormore | $20-$2499 | $20-$24.99 | $15-$19.99
Professional specialty, technical ...... 25 or more 20-24.99 20-24.99 20-24,99 20-24.99 15-19.99 15-19.99
Precision production, craft, and repair 20-24.99 10-1499 | 15-1999 15-19.99 15-1999 | 10-1499 | 10-1499
‘Transportation and material moving 15-19.99 5-9.99 10-14.99 15-19.99 10-14.99 5-9.99 10-14.99
Machine operators, assemblers, and inspectors 20-24.99 10-1499 | 10-1499 10-1499 10-1499 | 5-999 5-299
‘Administrative suppor, including clerical, 15-1998 10-1499 | 10-1499 10-1499 10-1499 | 10-1499 | 5-999
Handlers, cleaners, helpers, laborers 15-19.99 5-9.99 10-14.99 10-14.99 5-9.99 5-9.99 5-9.99
SOMICE eee eee eee . 20-24.99 5-9.99 10-14.99 10-1499 59.99 5-9.99 ‘Under $5
‘Nove: Ranges are based on compensation costs per hour worked. Ranges are used because average compensation costs at this fevel of detail are not reliable for publication.



MONTHLY LABOR REVIEW October 1987 ¢@ Analyzing Employers’ Compensation Costs

Chart 2, Employer costs for compensation
in private industry by selected industries
and occupations, March 1987

Dollars per hour worked
0 5 10 15 20

Total private

Wages and [Benelits

Salaries
Industries

Goods producing

Manufacturing

Service producing

Transportation,
public utilities

Wholesale trade
Retail trade

Services

Occupations

White collar

Professional, technical

Managers,
administrators

Clerical

Blue collar

Craft
Machine operators,
assemblers, inspectors

Transportation,
material moving

Laborers, handiers,
cleaners

Service

25

factors are also industry related—the higher costs reflecting
the concentration of blue-collar workers in goods-producing
industries.)

By occupation within industries. The wide variation in
average compensation costs by industry and occupation per-
sisted even when averages were examined by occupation
within industries. For example, within each industry, com-
pensation costs for the highest paid occupations were more
than double those for the lowest paid.

The dispersion of compensation costs by occupation is
illustrated in table 1, which categorizes average costs per
hour worked into six ranges—under $5 per hour worked;
$5-$9.99, $10-$14.99; $15-$19.99; $20-$24.99; and $25
or more. (The ranges are used because average compensa-
tion costs at this level of detail are not reliable for publica-
tion.) There was an overlap of occupational pay among
industries with substantially different overall compensation
costs. For example, the ranges for managers and profession-
als in service industries and retail trade—industries with
relatively low overall compensation costs—equaled or ex-
ceeded the, ranges for most occupational groups in manufac-
turing—an industry with relatively high overall compensa-
tion costs. This overlap demonstrates that analysis based
on overall industry averages is insufficient for determining
the impact on pay resulting from employment shifts occur-
ring in the work force. The effect depends on which jobs are
growing within each industry and which are declining.

How compensation costs are calculated

At least two approaches can be taken in measuring an
employer’s costs for employee compensation. One approach
focuses on past expenditures —that is, the actual money an
employer spent on compensation during a specified time,
usually a past year. The other approach focuses on current
costs—annual costs based on the current price of benefits
under current plan provisions. The Bureau’s previous meas-
ure of compensation cost levels, the Employer Expenditures
for Employee Compensation survey, used the past expendi-
tures approach.* Because the Ect measures change from one
time to another, it uses the current cost approach.

To estimate the total compensation cost per hour worked,
the ect (1) identifies the benefits provided, (2) deter-
mines, from current cost information (current price and cur-
rent plan provisions), the cost per hour worked for each
benefit, then (3) sums the costs for the benefits with the
straight-time wage or salary rate. The following examples
illustrate how current costs are determined for specific ben-
efit plans, and how they differ from costs based on past
expenditures.

Example /. Fora given year, each employee in a company
receives 10 paid holidays (five in each half of the year), and
receives 8 hours of straight-time pay for each holiday. The
hourly wage is $10 during the first half of the year, and
increases to $11 on July |. All employees work 2,000 hours
a year.



Table 3. Employer costs for employee compensation per hou
compensation, selected major industry groups, March 1987

ir worked, relative errors,’ and costs as a percent of total

Goods-producing industries Servico-producing industries
Private
Compensation industry Transportation | Wholesale R
component Total? Manufacturing Total? and public filles ade Retail trade Service
Relative Relative Relative Relative Relative Relative Relative Relative
Cost | Terror | CO | error | CO | “err | S| error | CM | error | SS | error | C8 | error | C8 | “error
Fotat compensation . | $1342} 1.1 | gises| 15 |sisst] 13 [siz] 14 | so02| 26 | sss} 28 |s7as| 22 | st2aa| 20
Wages and
salanes .... oss} 12 | 2) 13 | to77f 12 | 923) 18 | 1377] 23 | 1126} 28 | 607] 20 | 934] 20
Total benefits 380) 14 4m] 20 473] 17 | 312] 13 | sar] 98 | 391} 34 | 178] 34 | 300] 29
Paid eave . %{ 15 | 109] 22 tai} 22 7 { 20 175) 39 | 105] 50 ‘| 53 a] 44
Supplemental
pay... 2} 26 53] 36 2) 40 2| 36 si] 133 35) 6A | 87 49} 53
Insurance ve) 13 | 102] 26 106 | 24 | 16 132] 36 go] 34 35) 58 3} 29
Pensions and
savings... 43] 22 4] 45 sa) 35 41] 30 17] 69 49| 79 a4) 88 a7| 58
Legally required | 113) 9 | 143] 19 tat] 15 tor} 9 170) 23 | 121) 19 | 20 | 100] 16
Other benetis#. | 02 | 68 04] 95 ml] 92 o) © | 239 ©] 6 2] 126 eo] 8
Percent of total compensation
otal compensation 1000 100.0 100.0 100.0 100.0 100.0 190.0 1009
Wages and salaries 732 701 695 788 630 42 73 757
Total benefits. 268 299 305 2 320 258 wr 243
Paid leave . 69 68 78 70 86 69 48 74
Supplemental
pay 24 33 a4 18 25 23 19 15
Insurance. 54 64 68 48 65 53 45 43
Pensions and
savings . 36 44 38 33 58 33 18 30
Legal requires a4 30 a5 ar a4 80 95 at
Ciher benefiss 1 2 3 a a a 2 0

1 The selative error is the standard error expressed as a percont of the cost. We can be 95
percent confident the interval ground the cost estimate bounded by two times plus and minus the
‘elative ertor contains the "rue" cost.

2 Includes mining and construction, in addition to manufacturing.
® Includes finance, insurance, and realestate, in addition to the industries shown separately.

4 Includes severance pay. supplemental unemployment insurance, and merchandise dis-
‘counts in department stores.

5 Cost is $0.01 oF less.

Note: Gecause of rounding, components may net sum to totals,

gram, using occupational employment by industry from the
EcI sample. Industry employment estimates from the Cur-
rent Employment Statistics program are published monthly,
and are adjusted each year to a universe of all nonfarm
establishments from March of the previous year.

The March 1987 Current Employment Statistics data used
to calculate the compensation costs were total employment
estimates for 2-digit major industry groups (such as primary
metal manufacturing or food stores), as defined by the U.S.
Office of Management and Budget’s Standard Industrial
Classification system. The employment data from these 2-
digit groups were distributed to major occupational groups
(such as executives, administrators, and managers or ma-
chine operators, assemblers, and inspectors), using the rela-
tive importance of the groups as estimated from the FCI
sample.’

It is important to emphasize that because weights for the
ECI remain fixed while weights for cost levels change as
employment shifts occur, year-to-year changes in the cost
level estimates will differ from changes in the ecl. Employ-
ment shifts among industries and occupations with different
wage and benefit levels do not affect the ECI, but they do
affect cost levels. Thus, for example, if there is a shift in

employment toward relatively high wage industries or occu-
pations, the change in the cost levels will exceed the change
in the ecr.®

Standard errors. As is the case for all sample surveys,
compensation cost level estimates from the Ect will differ
from the “true” values because data were collected from a
sample rather than from all units within the Ect’s private
industry coverage.? To determine the precision of the cost
levels, a standard error was calculated for each estimate
using a balanced repeated replication method with 64
pseudo replicates.

The standard error defines a range (confidence interval)
around the cost estimate. The approximate 95-percent con-
fidence interval is the estimate plus and minus twice the stand-
ard error. For example, the 95-percent confidence interval
for a cost estimate of $10 with a standard error of 10 cents
would be $9.80 to $10.20.

If repeated samples are taken from the population, each
sample will have an estimate and confidence interval.
Ninety-five percent of those confidence intervals will in-
clude the “true” cost. That is, we can be 95 percent confi-



United States
: Department $Y
p of Labor

Bureau of Labor Statistics Washington, D.C. 20212

Technical contact: USDL: 87-471

Felicia Nathan (202) 523-1165

Media contact: FOR RELEASE: IMMEDIATE
Kathryn Hoyle (202) 523-1913 Wednesday, October 28, 1987

BLS PROVIDES ANALYSIS OF EMPLOYERS' COSTS
FOR WAGES, SALARIES, AND BENEFITS

Employee compensation in private industry cost employers
$13.42 per hour worked in March 1987, the U.S. Department of
Labor's Bureau of Labor Statistics reports in an article in the
October issue of the Monthly Labor Review... Wages, and salaries
averaged $9.83, while benefit costs averaged: $3.60.

The article, by BLS economist Felicia Nathan, presents data
on the cost per hour worked incurred by private industry
employers for wages, salaries, and benefits such as. paid leave,
insurance, and pensions and savings. The. data refer to March
1987 and are the first of a planned annual series.

- Highlights of the data reported in the article include:

* Employee benefits make up over one-fourth (26.8 percent) of
employer compensation costs in private industry.

* ‘he largest benefit category is legally required benefits,
which includes benefits such as Social Security and workers’
compensation. Legally required benefits cost employers an
average of $1.13 per hour worked~-accounting for 8.4 percent
of total compensation costs and nearly a third of all benefit
costs.

* In addition to legally required benefits, other important
benefit categories are paid leave (93 cents per hour worked),
insurance (72 cents), pensions and savings (48 cents), and
supplemental pay (32 cents), which includes premium pay for
overtime, shift pay, nonproduction bonuses, and lump-sum
payments.

* The proportion of employer compensation costs made up of
employee benefits varies by industry, ranging from 22.7
percent in retail trade to 32.0 percent in transportation
and public utilities.



5 The Employer Expenditures for Employee Compensation (keec) sur-
vey was discontinued in 1977. While differing from the ect in that it
measured expenditures rather than current costs, the EEEC survey had other
characteristics similar to those of the ECI. It covered virtually the same
benefits and reported the costs on a work-hour basis. The scope of the EEEC
survey was also similar to that of the Ci in that it covered the private
nonfarm work force.

For a more complete description of how EcI benefit costs are calcu-
lated, see ais Handbook of Methods, Bulletin 2134, Volume | (Bureau of
Labor Statistics, 1982). pp. 78-87

7 The major occupational group employment counts from the ECi are, on
average, 2 to 3 years old. However, comparisons of cost level estimates
showed that differences of a few years in the age of occupation data within
industries have a negligible impact on the estimates,

Some potential bias (systematic error) may affect the cost estimates
because of the age of the Ect sample. (Industry samples are replaced on a
4-year cycle.) To evaluate the extent of potential bias, a detailed analysis

was conducted comparing compensation costs and other data between
4-year-old and current industry samples. Because the current samples had
no bias resulting from age, the differences in cost levels between the old
and new samples would reflect bias in the older samples. In most cases, no
significant probability of bias was found. In those instances when the
hypothesis that the bias equaled zero could not be rejected, the magnitude
and nature of the bias was not such that it raised any concern about the
series recommended for publication.

8 By comparing year-to-year changes in compensation cost levels with
year-to-year changes in the Ec, it will be possible to gain insights into the
effect of employment shifts on compensation cost levels. Thus, for exam-
ple, if the change in the cost levels is greater than that in the index, then
the shift has been toward the relatively high-paying industries or occupa-
tions or both.

°The “true” value is also subject to nonsampling error.

"0 Kirk M. Wolter, Introduction to Variance Estimation (New York,
Springer-Verlag, 1985).

Research fellowships

The American Statistical Association and the Bureau of Labor Statistics,
under a grant from the National Science Foundation, are sponsoring a
Senior Research Fellow and Associate Program for 1988-89. The terms of
appointment range from | semester to } year and are part or full time.
Research will be conducted at BLS in Washington, Dc.

Fellowship applicants should have a recognized research record and
considerable expertise in their area of proposed research. Senior Research
Fellows will be selected by a review board consisting of representatives of
ASA, BLS, the American Economic Association, the Committee on National
Statistics, and the Social Science Research Council. Associates will assist
the Fellows on their projects. Associate applicants should have a Ph.D in
an appropriate field or have made significant progress toward the degree (at
least 2 years of graduate study). Substantial computer experience will, in
most cases, be required of Associates. Associates will be selected by the
Senior Research Fellows with the approval of the review board.

The program is coordinated by the BLs Office of Research and Evalua-
tion. Current research being conducted by this office includes index num-
ber theory and measurement, price measurement, cost-of-living and
demand studies, survey response error, workers’ compensation, compen-
sating wage differentials, productivity analysis, relationship of union mem-
bership to employment variability, model-based seasonal adjustment, pre-
diction properties of index estimators, measures of central location based
on censored data, upper and lower probability inferences for outliers, and
variance estimation.

For further information, contact Dr. Cathryn Dippo or Dr. Marilyn
Manser, Bureau of Labor Statistics, Office of Research and Evaluation,
Room 2126, 441 G Street, NW, Washington, Dc, 20212; (202) $23-
1874 or (202) 523-1347.

Mk



MONTHLY LABOR REVIEW October 1987 ¢ Analyzing Employers’ Compensation Costs

Table 2. Employer costs for employee compensation per hour worked, relative errors,’ and costs as a percent of total com-
pensation, by major industry and occupational categories, March 1987
Private Goods Service. Manutec- Nonmanu- |
Whitecollar | Blue-coltar Service |
industry producing producing turin facturing
Compensation workers industries industries indust industries workers workers workers
component i
Relative Relative Relative Relative Relative Relative Relative Relative \
Cost | "error | O8 | error | OS | “error | SM | error | C8 | “error | C8 | “error | C8 | “error | C8 | “error |
Total compensation . . a $15.86 15 $12.41 14 $15.51 13 | $12.80 1.3 | $15.56 16 $13.43 13 | $6.43 16 i
Wages and salaries ges] 12 | 142} 13 | 929] 16 | to77] 12 | 955] 15 | ter] 18 | 998) 14 | 496) 18 . i
Total benefits ... a 474 20 3.92 13 473 17 3.26 12 3.95 14 4.05 19 147 24
15 1.09 22 7 20 121 22 85 19 1.20 19 82 2.0 30 39
18 55 23 AS 25 61 22 42 24 58 25 AB 24 BL) 34
13 40 24 28 17 AS 24 aT 16 39 18 ce) at 08 38
25 10 44 2 30 ai 50 12 29 A7 24 06 33 04 o8
5A 3] 69 04} 65 os] 78 3} 62 05] 44 os} 113 | 02} 157 |
26 53] 36 2) 36 so} 40 | 25| 33 2} 47 a7} 35 | 08] 64 i
34 33] 38 ‘e] 45 %} 39 | 44 og} 43 a4] 38 | 4] 97
61 AZ} 11.9 MM 68 10} 147 Bra 72 18 74 a 83 02) 14.1
46 07 57 02 65 08 57 02 64 03 74 6 55 02 94
13 1,02 26 60 16 1.06 24 62 18 a 16 cu 25 a 57
22 Bl 45 4} 30 58] 35 AS} 28 57] 28 so} 40 | 42] 84
23 36 49 36 33 49 36 40 30 48 33 AT 42 AY 79
vi 5.6 08 63 05 BS 09 70 05 cal 10 ag 03 67 2 a
‘Legally required® . 9 | 143] 19 | 101} 9 | 131] ts | tos] to } tz] sa | a7} 16 | oo] 18
ial Security . & 8B 13 9 9 &7 12 ral 9 85 WwW 5 12 38 WW
Federal unemployment - 9 oa] 13 3] 14 3} 16 3] 10 3] 15 3] 9 | 03) 14
‘State unemployment 18 18] 29 40] 21 ww] 33 10) 21 si] 2a 4] 26 | 10] 42
‘Workers’ compensation 24 2] 48 16] 25 2] 46 20} 25 41} 33 30{ 32 | 16] 38
Other benefits4 .. 02 68 04 95 @ @ 04 92 (a (2) 02 7 asd Bo 2 (2)
Percent of total compensation
Total compensation... 100.0 100.0 100.0 100.0 1000 1009 100.0 1000
‘Wages and salaries ...... 732 70.1 748 68.5 746 746 69.8 72
!
Total benefits .. . 268 299 2 305 25.4 254 90.2 28 i
Paidieave: ......-..... 69 68 70 78 66 77 61 AT |
Vacation 35 35 34 40 33 38 32 24
Holiday 202 23 25 22 29 24 25 22 14 j
‘Sick 3 6 10 7 9 14 5 i
Other: 3 2 3 2 3 3 2 2
Su 24 33 18 34 20 18 35 13
remium pay : 12 at 7 22 8 5 25 7 |
‘Nonproduction bonuses 9 8 cs 7 10 WwW 5 3 |
Shift pay 3 4 2 5 2 2 5 3 i
Insurance: 54 64 48 68 48 4g 64 42 |
Pensions and savings: 36 ad 33 38 35 a7 a7 19 |
Pensions ... 32 35 29 32 31 31 35 Ww if
Savings and 5 5 4 6 4 6 2 2
Legally required 84 90 at 85 84 72 102 107
‘Social Security ....... 58 56 56 58 56 55 56 61 |
Federal unemployment . . 2 2 3 2 2 2 2 5
State unemployment. 3 Wd 8 Ww 3B 7 ad 15
Workers’ compensation 16 20 13 15 16 7 23 25
Other benefits ......... 1 2 1 1 A 2 a
‘The relative error is the standard error expressed as a percent of the cost. We can be 95 percent other legally required benefits, in addition to those shown separately.
‘confident the interval around the cos! estimate bounded by two times plus and minus the relative error
‘contains the “true” cost. 4 Includes severance pay, supplemental unemployment benelits, and merchandise discounts in
2Costis $0.01 or less. epartmant stores.
3 Includes rairoad ratrement,ralroad unemployment, raoad supplemental unemployment, and Nove: Because of rounding, components may nol sum to totals.

ployment shifts among occupations and industries. Com- __ it is necessary to have employment data that refer to the
pensation cost levels, however, should reflect the current current mix.

industry and occupational mix each year they are published. Such data are obtained by apportioning industry employ-
Thus, to estimate current cost levels for the aggregate series, ment from the Bureau’s Current Employment Statistics pro-



MONTHLY LABOR REVIEW October 1987 © Analyzing Employers’ Compensation Costs

Glossary

Following are definitions of the compensation components
covered by the Employment Cost Index.

Wages and salaries:

‘The hourly straight-time wage rate, or, for workers not paid
on an hourly basis, earnings divided by corresponding
hours. Wages and salaries include production bonuses, in-
centive earnings, commission payments, and cost-of-living
adjustments, but exclude supplemental pay.

Benefits:
Paid leave—Paid vacations, paid holidays, paid sick leave,
and other paid leave.

Supplemental pay—premium pay for overtime and work on
weekends and holidays, shift differentials, nonproduction
bonuses, and lump-sum payments.

Insurance benefits—life, health, and sickness and accident
insurance.

Retirement and savings benefits— pension and other retire-
ment plans, and savings and thrift plans.

Legally required benefits-—Social Security, railroad retire-
ment and supplemental retirement, railroad unemployment
insurance, Federal and State unemployment insurance,
workers’ compensation, and other benefits required by law,
such as State temporary disability insurance.

Other benefits—Severance pay, supplemental unemploy-
ment plans, and merchandise discounts in department
stores.

less, they still account for a very small part of total com-
pensation. These payments are included in the supplemental
pay category, which averaged less than 3 percent of em-
ployer compensation costs.

Wages and salaries plus benefits that are paid in cash to
the employee (paid leave and supplemental pay) accounted
for 82.5 percent of total compensation costs per hour
worked. The remaining 17.5 percent of employer costs was
made up of noncash benefits purchased for the employee.
These noncash benefits include insurance, pensions and sav-
ings, legally required and other benefits, such as supple-
mental unemployment plans and merchandise discounts in
department stores.

By industry division. Hourly employer compensation
costs were, on average, higher in goods-producing indus-
tries ($15.86) than in service-producing industries
($12.41).? However, within the service-producing sector,
there was substantial variation in compensation costs.
Among the service-producing industries for which data were
published, costs were highest in transportation and public

utilities ($20.24 per hour worked) and wholesale trade
($15.15), and lowest in service industries ($12.34) and re-
tail trade ($7.85). (See chart 2.)

As noted previously, wages and salaries alone make up
the major portion of compensation costs in all industries.
However, the wage and salary proportion of compensation
costs was less in relatively high-paid industries than in other
industries. Wages and salaries made up 68 percent of total
compensation costs for workers in transportation and public
utilities, compared with 74.2 percent in wholesale trade,
75.7 percent in service industries, and 77.3 percent in retail
trade.>

Industries also differ in the cost and relative importance
of the various benefits. Benefit costs are related, in part, to
wages and salaries because the costs for a number of bene-
fits (paid leave and Social Security, for example), are tied
to wage rates or earnings. But other factors are also impor-
tant in explaining the industry-to-industry differences.

To illustrate the effects of some other factors, consider
paid leave. This benefit is typically paid at the employee’s
wage or salary rate, but its cost is influenced by the amount
and type of leave granted. Differences among industries in
the amount of paid leave reflect variation in paid leave
plans, in employees’ length of service with the company,
and in the mix of full- and part-time workers.

The following tabulation compares average wage and
salary rates and paid leave costs per hour worked in selected
industries, March 1987:

Paid leave
Wages ‘As a percent
and of wages and
salaries Cost salaries
Private industry ............. $ 9.83 $0.93 95
Goods-producing . 11.12 1.09 9.8
Manufacturing . 10.77 1.21 1.2
Service-producing . . 9.29.87 94

Transportation and
public utilities .
Wholesale trade
Retail trade .
Service ...

13.77 1.75 12.7
11.24 1.05 9.3
6.07.37 6.1
9.34 91 97

Also, there is a striking variation among industries in
employer costs for providing employees with insurance
(life, health, and sickness and accident)—a benefit domi-
nated by health insurance with costs usually not tied to
wages and salaries. This variation reflects differences in the
types and extent of insurance benefits provided, as well as
differences in employee contributions to insurance, and the
proportion of workers covered. Even though an employer’s
health insurance costs for a plan are about the same regard-
less of the employee’s pay level, there is a positive relation-
ship across industries between the costs of insurance and the
wage and salary rate.



Analyzing employers’ costs
for wages, salaries, and benefits

Employment Cost Index data now provide
a breakdown of hourly costs incurred;

in March 1987, employee benefits
accounted for more than one-fourth

of compensation in private industry

Fevicta NATHAN

Employee compensation in private industry cost employers
$13.42 per hour worked in March 1987. Straight-time
wages and salaries—73.2 percent of the costs—averaged
$9.83, while benefit costs—the remaining 26.8 percent—
averaged $3.60.

These costs are based on data from the Bureau of Labor
Statistics Employment Cost Index (cl) which measures
quarterly changes in employer costs for employee compen-
sation. The Ect is a fixed-weight Laspeyres index that uses
1980 census employment counts as weights. Data collected
for the ECI can be used to derive compensation cost levels at
no additional burden on survey respondents, but current
employment weights are required. The BLs Current Employ-
ment Statistics survey in combination with the EcI sample
provide the current weights.

The EcI’s establishment sample has been recently ex-
panded, making it possible to produce estimates of compen-
sation cost levels that are sufficiently reliable for analysis
and publication. The Bureau plans to publish compensation
cost estimates from the EC) sample annually, using March as
the reference period. The estimates will be available in
midsummer.

Felicia Nathan is an economist in the Division of Employment Cost Trends,
Bureau of Labor Statistics.

This article presents cost estimates for the components of
compensation for private industry workers,! by industry di-
vision and occupational group. In addition, relative errors
associated with the estimates and costs as a percent of total
compensation are shown. This article also discusses high-
lights of the compensation cost estimates, illustrates how the
estimates were calculated, and briefly explains the standard
errors associated with the estimates.

Compensation costs

During the post-World War II era, employee benefits
have become an important part of labor costs and worker
income. Today, slightly more than one-fourth of employee
compensation is in some form of benefit. The largest cate-
gory is legally required benefits, which accounts for 8.4
percent of total compensation costs. (See chart 1.) These
legally required benefits include Social Security, workers’
compensation, and unemployment insurance as well as
other less common benefits, such as railroad retirement and
State temporary disability benefits. Employer costs for le-
gally required benefits averaged $1.13 per hour worked in
March 1987—nearly a third of all benefit costs.

Lump-sum payments, provided in lieu of wage increases
or to offset wage decreases, are becoming more widespread,
particularly in collective bargaining agreements. Neverthe-

|



2

* The proportion of employer compensation costs made up of
employee benefits also varies by occupation, ranging from 22.8
percent for service workers to 32.1 percent for machine
operators. :

The cost levels were obtained from data collected for the
Bureau's Employment Cost Index (ECI), which measures change in
employer costs for employee compensation. By using. data already
collected for the ECI, it is possible to provide cost levels
without placing an additional reporting burden on companies.

The Monthly Labor Review is sold by the U.S. Government
Printing Office, Washington, D.C. 20402, for $16 a year, single
copy $4.75. Make checks payable to the Superintendent of
Documents. .

Note to editors: Single copies of the article are available
- from -BLS,. 202-523-1913. . i”