Are Your Employees Costing You More This Year?

Does it feel like your employees are costing you more this year? It might, given everything that's been going on in the economy. Like many companies, your revenues may be decreasing while your costs are increasing. You may be tempted to blame the increasing costs on labor. But you'd probably be laying the blame on the wrong area - the average cost of employee compensation has increased less than $0.50 per hour during the last year.

Private industry employers are currently spending an average of $28.13 per hour in employee compensation, up 49 cents from $27.64 a year ago. Wages and salaries are about 70% of this, averaging $19.81. Benefits account for the remaining 30%, averaging $8.32.

The Bureau of Labor Statistics just released the latest Employment Cost Index. The Employment Cost Index measures the change in the cost of labor, free from the influence of employment shifts among occupations and industries.  Data from the BLS indicates that the cost of total compensation for civilian workers increased only 0.3 percent during the last three months, and the rate of increase is slowing down.

The chart below compares the three-month percentage change in the cost of employee compensation for the periods ending September 2010 and September 2011. I've broken the data out into the five major occupational categories. Within each category, I show the percentage change for total compensation, wages and salaries, and benefits.

In all but one occupational grouping, the three-month rate of increase in the cost of total compensation fell or stayed the same relative to last year:

• Management, professional and related occupations: decrease from 0.4 percent to 0.3 percent
• Sales and office occupations: no change
• Natural resources, construction and maintenance occupations: increase from 0.4 percent to 0.6 percent
• Production, transportation and material moving occupations: decrease from 0.7 percent to 0.2 percent
• Service Occupations: decrease from 0.4 percent to 0.1 percent

The increased rate of growth in natural resources, construction and maintenance occupations is due to a higher rate of wage and salary increase:

• Management, professional and related occupations: no change
• Sales and office occupations: increase from 0.3 percent to 0.6 percent
• Natural resources, construction and maintenance occupations: increase from 0.3 percent to 0.6 percent
• Production, transportation and material moving occupations: decrease from 0.5 percent to 0.2 percent
• Service Occupations: decrease from 0.3 percent to 0.1 percent

The rate of growth of benefits in all occupations fell, and in fact the cost of benefits in service occupations actually went down:

• Management, professional and related occupations: no change
• Sales and office occupations: decrease from 0.6 percent to 0.3 percent
• Natural resources, construction and maintenance occupations: decrease from 0.7 percent to 0.5 percent
• Production, transportation and material moving occupations: decrease from 1.1 percent to 0.0 percent
• Service Occupations: decrease from 0.7 percent to -0.1 percent

What all of this means is that even though your costs for total compensation are increasing, the cost is increasing at a decreasing rate. The growth rate is slowing down. So even though you may be feeling pinched between falling revenues and rising costs relative to last year, it's probably not entirely due to payroll costs.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats.

Thanks to Stephanie R. Thomas / Compensatin Café
http://www.compensationcafe.com/2011/11/are-your-employees-costing-you-more-this-year.html