Human Capital & Careers

A Bad Year for Benefit Costs

Government data shows benefit costs jumped markedly last year; medical, DB plans get the blame.
David KatzMay 6, 2003

From the point of view of private-sector employers, it’s been a disastrous year for benefit costs.

For the year ended March 2003, benefit expenses leaped 6.1 percent, greater than the 4.8 percent jump for the year ending March 2002, according to figures just released by the U.S. Bureau of Labor Statistics. State and local government employers had similar boosts: 6.6 percent in benefits and 3.1 percent in wages and salaries.

Fueled by a rapid ramp-up in benefit costs, the Employment Cost Index (ECI) for total compensation spiked 1.3 percent from December 2002 to March 2003, according to the bureau. That followed a 0.7 percent gain in the ECI in the previous quarter. The index measures quarterly changes in compensation costs.

Indeed, employer payouts for pensions and medical plans are practically lapping other payroll costs. In the private sector, benefit costs jumped 2.4 percent—outpacing a 1 percent wage-and-salary gain for workers—in the quarter ending in March. The benefit bump-up was substantially higher than all quarterly gains since March 2000, according to the bureau.

Much of the rise in benefit costs stemmed from surging health-insurance premiums and a recent upturn in retirement costs, especially those involving defined-benefit pension plans. As measured by the government, employee benefits include health (and other) insurance, retirement plans, paid leave, and legally required benefits such as Social Security.

All told, employer costs for those benefits now account for nearly 30 percent of compensation costs, according to the bureau’s statistics.

The rise in labor costs varied by industry. The finance, insurance, and real-estate category registered the biggest rise in compensation costs with a nearly 5 percent gain for the quarter ending in March. Labor-cost hikes in manufacturing (1.8 percent) and wholesale trade (1.7 percent) were also sizable.

Compensation increases were weighed down a bit by payouts in retail trade (a drop of 0.1 percent), transportation and public utilities (a 0.7 percent boost), and construction (a 0.8 percent increase).