As Labor Costs Rise, Spotlight Is On Benefits

The cost of benefits continues to drive up employee compensation costs, according to a report released Friday by the U.S. Labor Department.

Over the last 12 months, total compensation—which includes salaries, wages and benefits—rose 2%. The rise was primarily due to a 3% rise in benefit expenses, the report said.

In addition to health insurance, benefit expenses include paid leave, retirement and overtime premiums.

Starting in about 2005, some companies began to mitigate these expenses by shifting the risk and costs of having to pay for injuries and illnesses to employees through consumer-directed health-insurance plans, said Beth Umland, director of research for health and benefits for Mercer, a human resources consultant.

Such plans have lower premiums but high deductibles and are frequently paired with tax-advantaged savings accounts.

Overall, the cost of employees' wages and benefits rose at their fastest rate in a year, according to the report. Labor costs increased 0.6% in the first quarter, slightly more rapidly than their 0.5% rise in the fourth quarter last year.

Even though the nationwide unemployment rate—8.8% in March—is still high, wages may also start to increase in some industries if the skills companies are looking for are different than those that employees have, said Columbia University labor economist Till von Wachter.

"Generally, there's always a bit of a mismatch," Mr. von Wachter said, "but it's too early to tell how much of an impact that could have."

Already some companies, particularly in the technology industry and companies in a few oil-rich states, have reported bidding wars for employees with certain skills.

According to the Labor Department report, wages in the information industry, which includes computer software engineers, grew 1.2% in the first quarter.

Over the past year, total compensation for workers at private companies rose most rapidly in Seattle and Houston, where employee costs rose by 4% and 3.3% respectively, according to the Labor Department.

Thanks to Joe Light / Dow Jones & Company, Inc. / Online WSJ