Chart 1. Employment Cost Index, private industry, wages and salaries and
benefits, cumulative change

Logarithmic scale
200 Benefits | jet BE
a |
150 a
A
jes and salaries

100
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
See note at the end of chart 7.

Chart 2. Employment Cost Index, private industry, wages and salaries,
by occupational category :

Logarithmic scale
250
[-
200 Whitelcollar! “| —
Saaeeai
150 Nt fl
iA Blue collar
nal
100 7

4979 1981 1983 1985 1987 1989 1991 1993 1995 1997
See note at the end of chart 7.

Compensation and Working Conditions Summer 1997 48


Chart 7. Employment Cost Index, private industry, benefits, cumulative
change, by bargaining status

Logarithmic scale
i 14 |

250 t
non nic

Union

y

00
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

150

A

NOTE: A logarithmic scale is used, rather than a linear scale, so that the same percentage gains
take up the same amount of vertical distance. To allow consistent comparisons, alt values for the
beginning of each series were set to 100. Percent changes can be calculated by comparing two
logarithmic values. For example, the percent change between logarithmic value of 150 and 200 is
[(200 - 150)/150] x 100 = (50/150) x 100 = 333 x 100 = 33.3.

51 Compensation and Working Conditions Summer 1997


By bargaining status, nonunion compensation cost in-
creases were slightly ahead of union increases. Unlike the
occupational and industry comparisons, however, the trend

‘was not consistent. Until 1986, union compensation in-
creases were greater; but since then nonunion compensa-
tion increases have been greater.

—ENDNOTES—

' Benefits included in the BCI are: Paid leave (vacations, holidays, sick
leave, and other leave); supplemental pay (premium pay for overtime, shift
<ifferentials, and nonproduction bonuses such as lump-sum payments in lieu
cof wage increases); insurance benefits (life, health, sickness and accident, and
long-term disability); retirement and savings benefits (defined benefit and
defined contribution); legally required benefits (Social Security, Federal and

State unemployment insurance, workers” ‘and other legally re-
quired benefits such as State temporary disability); and other benefits (sever-
ance pay and supplemental unemployment plans).

2 Wages and salaries are defined as the hourly straight-time wage rate or,
for workers not paid on an hourly basis, straight time earings divided by the
corresponding hours. ‘wage and salary rates are total earnings.
before payroll deductions exchuding 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 bo-
‘nuses, incentive earnings, commissioned payments, and cost-of-living adjust-
ments are included in straight-time wage and salary rates.

3 BLS Handbook of Methods, appendix A, “A Seasonal Adjustment Meth-

47 Compensation and Working Conditions Summer 1997

adology” Blletin 2450, Bureau of Labor Statistics, April 1997, pp. 231-

us. Department of Labor News Release, USDL 76-940, June 18, 1976,
“The Bureau of Labor Statistics Introduces the First Measure of Wage and
Salary Rate Trends From Its New Employment Cost Index.”

5 Usually, calculating wages and salaries is straight forward. By defini-

tion, wages are expressed as an hourly rate, and salaries typically have an
oe wat cnanber ofbours associated with te time period (eg, weekly ot
‘monthly) that can provide an estimate of hours worked. However, benefit costs
are frequently independent of the hours worked. For example, health insurance
premiums are usually a fixed cost, set annually, and amount of vacation time is
often based on length of service. Also, since benefits are not always offered,
they can have a zero cost, while wages and salaries cannot be zero.

Series for manufacturing and nonmanufacturing are excluded from
this article because they are similar to the goods-producing and service-

producing series.
7'US. Department of Labor News Release, USDL 96-424, October 10,
1996, “Employer Costs for Employee Compensation—March 1996.”


Chart 3. Employment Cost Index, private industry, benefits, cumulative
change, by occupational category

Logarithmic scale
|e
250 Foo oto tee ee =
200 -
i
150 5
Al Blue collar
VA ‘

00
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
See note at.the end of chart 7.

Chart 4. Employment Cost Index, private industry, wages and salaries,
cumulative change, by industry sector
Logarithmic scale

250

150

+

VA

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
See note at the end of chart 7.

49 Compensation and Working Conditions Summer 1997


Comparing Trends
in Components of
the Employment
Cost Index

BY WAYNE M. SHELLY

The Employment Cost Index (ECT) frequently is used to
analyze recent trends in the costs associated with employee
compensation. A convenient way to do this is to compare
ECI series amongst themselves as well as over time by look-
ing at their 12-month percent changes. The 12-month pe-
riod allows for the elimination of seasonal patterns that can
be misleading in shorter time frames. It also allows for
easy comparison to other data, such as the Consumer Price
Index, or an individual’s pay raise. For example, in De-
cember 1996, the 12-month change for wages and salaries
in private industry was 3.4 percent, while the change for
benefit costs was 2.0 percent. Looking back a few years
shows a different relationship between wages and salaries
and benefits. In December 1992, private industry wages
and salaries rose 2.6 percent, while benefit costs increased
5.2 percent.

Background

This article examines the changes in compensation costs
among various series over several years. Data from the
ECI for private industry are used to look at these changes.
The ECI measures the change in the cost of labor to em-
ployers. Since it also includes the costs of benefits,’ along,
with wages and salaries,” it provides. a comprehensive mea-
sure of an important part of the costs of operating a busi-
ness. Changes in labor costs may affect the prices charged
for products, the amount invested in new technology or train-
ing, or profits of the company. Comparing compensation
changes by various categories of workers provides clues to
changes in the economy.

Analysts looking for more current or emerging trends
use the 3-month seasonally adjusted percent changes. The

‘Wayne M. Shelly isan economistin the Division of Compensation Data
‘Analysis and Planning, Bureau of Labor Statistics. Telephone (202) 606-
6199.

seasonally adjusted series removes the seasonal patterns
leaving the trend and other nonseasonal growth for analy-
sis.?

While both 12-month and 3-month percent changes pro-
vide valuable information, analyses of longer time periods
allow an additional perspective. In any one quarter, small
changes tend to go unnoticed. However, small changes that
occur frequently may be compounded, signaling structural
changes in the economy or the way employees are compen-
sated for their labor. Another possibility is that two sectors
move back and forth with one sector outpacing the other
for a couple of years, then the other sector catching up and
surpassing it.

The major limitation to long-term analyses is that fewer
series are available in the earlier years of the ECI. Wage
and salary cost data from the ECI for private industry were
first collected for September 1975. Benefit cost data for
private industry began in December 1979. Combining
wages and salaries with benefit costs allowed a component
series—compensation costs—to be published.

Over time, the ECI expanded by adding additional de-
tailed series—industry, occupation, bargaining status, met-
ropolitan area status, and geographic region. The first ECI
news release‘ contained 21 series. Today, there are 303
series. Thus, any long-term analyses must recognize the
need to study different time periods, making the compari-
sons more difficult.

Since the pricing of benefits is such an important part of
the ECI, this analysis starts with December 1979, when
benefit cost data were first introduced into the index. The
pricing of benefits generally is more complicated than the
pricing of wages and salaries> and, consequently, there are
fewer benefit cost series: 10 are published for private in-
dustry, 9 of which began in 1979. This article examines
wages and salaries and benefits for eight of these series®:

Compensation and Working Conditions Summer 1997 44


Chart 5. Employment Cost Index, private industry, benefits, cumulative
change, by industry sector

Logarithmic scale
250 - | - roe
Stree pro
200
yt
150
a
y

00
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
See note at the end of chart 7.

Chart 6. Employment Cost Index, private industry, wages and salaries,
cumulative change, by bargaining status

Logarithmic scale

250

Nonunjon

200

a

150
Union|

~ ot

A |

00
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
See note at the end of chart 7. .

Compensation and Working Conditions Summer 1997



All private industry workers
1. Wages and salaries
2. Benefits
Occupation
3. White collar
4. Blue collar

Private industry sector
5. Goods producing
6. Service producing,
Bargaining status
7. Union
8. Nonunion

In addition, the article examines compensation cost data
for some more detailed series: By industry division, major
occupational group, geographic region, and by bargaining
status. However, because these more detailed series began
in the mid-1980s, they are compared separately from the
first set of data.

Wages and salaries vs. benefits in private industry

Total compensation costs for private industry workers,
as measured by the ECI, increased 121 percent between
December 1979 and December 1996. Wages and salaries,
which made up approximately 72 percent of total compen-
sation in March 1996,’ increased 107 percent, while ben-
efit costs, which make up about 28 percent, increased 160.5
percent. (See chart 1.) A different way of looking at the
change is in dollar terms. For example, if total compensa-
tion for 1 hour of labor in December 1979 cost $10.00, that
same unit of labor would cost $22.10 in December 1996.
However, the mix between wages and salaries and benefits
would differ because of the different rates of growth in the
two components. Although the change in benefit costs out-
paced wages and salaries for most of the period, the change
was not uniform. From 1979 to 1987, benefit costs rose
approximately one-third more than wages and salaries (70.1
percent for benefits and 53.0 percent for wages and sala-
ries). For the last 2 of these years, the increases were about
the same for both components. Over the 1987-95 period,
however, benefit costs grew by almost two-thirds more than
wages and salaries (50.2 percent for benefits and 30.8 per-
cent for wages and salaries). But in 1995, benefit cost in-

creases fell below wage and salary increase. From Decem- ©

ber 1994 to December 1996, benefit cost increases were
only two-thirds of the wage and salary increase (4.2 per-
cent for benefits and 6.3 percent for wages and salaries).

White-collar, blue-collar, and service occupations
in private industry

For classification purposes, ECI separates occupational
cost data into three main categories: White-collar, blue-col-
lar, and service occupations. The first two categories each
are further broken down into four major occupational

45 Compensation and Working Conditions Summer 1997

groups. The white-collar category consists of: Professional,
specialty, and technical workers; executive, administrative,
and managerial occupations; sales occupations; and admin-
istrative support, including clerical occupations. Blue-col-
lar occupations consist of: Precision production, craft, and
repair occupations; machine operators, assemblers, and in-
spectors; transportation and material moving occupations;
and handlers, equipment cleaners, helpers, and laborers.
The last category—service occupations—is not broken down
any further.

Compensation costs for white-collar workers outpaced
those for blue-collar workers between 1979 and 1996 (129.4
percent and 110.4 percent, respectively). While this phe-
nomenon has occurred in both wages and salaries and ben-
efits, it was more pronounced in wages and salaries.

Chart 2 shows that wage and salary costs for white-col-
lar workers rose 116.3 percent while blue-collar increases
were 94 percent from 1979-96. Increases for both series
were approximately the same from 1979 to 1982 (26.2 per-
cent for white collar and 25.6 percent for blue collar). From
1982 to 1996, white-collar wage and salary cost increases
were almost one-third more than blue-collar cost increases
(71.4 for white collar and 54.4 for blue collar).

The difference in benefit cost increases has been less
than that for wages and salaries. As seen in chart 3, benefit
costs increased among white-collar workers by 168.1 per-
cent and among blue-collar workers by 150 percent between
1979 and 1996. This was a 12.1-percent difference over
the 17-year period.

As seen in the following table, compensation data for all
nine major occupational groups are available from March
1986. During the period March 1986 to December 1996,
total compensation costs increased 50.7 percent for white-
collar workers and 44.3 percent for blue-collar workers.
Service occupations, which make up the final major occu-
pational group, increased by 44.2 percent.

, ‘i Percent
‘Major occupational group increase
White-collar occupations 50.7
Professional, specialty and technical 535
Administrative support, including clerical 523
Executive, administrative, and
Managerial occupations 495
Sales occupations 46.2
Blue-collar occupations 443
Machine operators, assemblers,
and ir 46.7
Handlers, equipment cleaners,
helpers, and laborers 46.5
Precision production, craft, and
Tepair occupations 43.3
Transportation and maieriai
moving 40.2
‘Service occupations 442

Excluding sales occupations, the white-collar occupa-
tions had greater increases in compensation than the blue-
collar and service occupations. Compensation for sales oc-
cupations, which is affected by volume of sales because many


incumbents are paid on commission, had cumulative in-
creases similar to all occupations excluding sales from
March 1986 to June 1991. However, since June 1991, sales
occupations have lagged behind all occupations excluding
sales. When the volume of sales changes, so does salesper-
sons’ commissions, which are part of wages and salaries.
Thus, sales occupations show more volatility than the other
occupational groups.

Goods-producing vs. service-producing industries

Wages and salaries for goods-producing industries in-
creased 99.1 percent from 1979 to 1996 (see chart 4.) Ser-
vice-producing industries increased 112.5 percent. From
December 1979 to June 1982, service-producing industries
increased 26.5 percent and goods-producing industries in-
creased 25.6 percent. From June 1982 to December 1988,
service-producing wage and salary costs increases one-
fourth more than goods-producing industries (28.9 percent
and 22.8 percent, respectively). From December 1988 to
December 1996, service-producing industries wage and
salary costs increased 30.4 percent and goods-producing
industries increased 29.1 percent.

Differences in benefit costs between the two sectors was
less pronounced than for wages and salaries as seen in chart
5. From 1979 to 1996, goods-producing industries’ benefit
costs increased 155.9 percent and service-producing in-
dustries’ benefit costs increased 164.7 percent.

To look ata finer level of detail, compensation data have
been available since March 1986 for all industry divisions
(except mining) and, in some cases, for sub-industry detail.
From 1986 through 1996, compensation for service-pro-
ducing industries increased 48.8 percent and goods-pro-
ducing industries increased 46.7 percent. Breakouts for
compensation increases in industry divisions are as follows:

ray Poet
Goods producing 46.7
Manufacturing - Nondurable goods 49.4
Manufacturing - Durable goods 48.0
Construction 428
Service producing 48.8
Service industries 56.4
Wholesale trade 51.5
Finance, insurance, and real estate 45.3
Public utilities 446
Relail trade 428
‘Transportation M5

NOTE: Data for mining are not published.

Service industries, which include a wide variety of ser-
vices for individuals, businesses, and government (such as
health services, business services, and eduational services)
showed a different rate of growth between the first and sec-
ond halves of the 11-year period. From March 1986 to

June 1991, service industries increased 30.7 percent. From
June 1991 to December 1996, the increase slowed to 19.6
percent.

Union vs. nonunion

For the December 1979-December 1996 period, com-
pensation costs for nonunion workers, at 121.8 percent, were
slightly higher than for union workers, at 116.6 percent.
The difference was due to larger wage and salary growth
for nonunion workers. Changes in benefit casts were about
the same for both groups.

Chart 6 shows that wages and salaries grew faster for
union workers from 1979 to 1986. Since 1986, however,
the reverse has been true. Over the entire 17-year period,
nonunion wages and salaries have increased by 109.7 per-
cent, while those of union members increased by 96.6 per-
cent.

As seen in chart 7, from 1979 to 1996, cumulative union
increases for benefit costs were about the same as those for
nonunion workers. Union benefit costs increased 160.1 per-
cent and nonunion benefit costs increased 160.5 percent.

Additional industry and occupational data by bargain-
ing status are available from 1981 and 1987, respectively.
Since June 1981, compensation costs for union workers has
increased 84.5 percent, while that for nonunion workers
has increased 92.6 percent. In the goods-producing sector,
union increases were 81.0 percent, while nonunion increases
were 88.1 percent. In service-producing industries, com-
pensation costs increases for union workers were 89.5 per-
cent and nonunion increases were 95.6 percent.

Since June 1987, union compensation costs increased
40.6 percent and nonunion increased 43.1 percent. Among
unionized blue-collar workers, total compensation costs in-
creased 39.1 percent compared to 40.7 percent for their
nonunion counterparts. In manufacturing, blue-collar
worker compensation costs increased 43.1 percent for both
union and nonunion workers.

Conclusion

Employers’ costs of providing compensation to their
employees has more than doubled since 1979. However,
the two components of compensation—wages and salaries
and benefits—have grown at different rates. Benefit costs
have grown faster than wages and salaries since 1979. Thus,
benefit costs are now a larger percent of total compensa-
tion. Second, the increases have varied among series. The
data indicate that, among the various series examined in
this article, the widest difference was between white-collar
and blue-collar occupations. This gap has grown rather
steadily since 1982. For industry, occupation, and bargain-
ing status, the gap was more pronounced in the wage and
salary component than in the benefits component.

Among industry sectors, the service-producing sector’s
compensation cost increases have outpaced those in the
goods-producing sector, although not by as much as those
among occupations.

Compensation and Working Conditions Summer 1997 46