Human Capital & Careers

Cost-of-Employment Increases Wane

Employment costs rose 0.5% in the fourth quarter of 2016, below the level of increases in the prior three quarters.
Sean AlloccaJanuary 31, 2017
Cost-of-Employment Increases Wane

The cost of employment rose only slightly in the fourth quarter of last year due in part to a reduction in the amount U.S. companies paid to provide health benefits to workers, according to new data from the U.S. Bureau of Labor Statistics.

The Employment Cost Index released on Tuesday reflected a seasonally adjusted 0.5% increase in overall compensation costs in the final three months of 2016. The increase fell below the 0.6% quarterly increase in each of the prior three periods.

The less-than-expected increase was due in part to a slowing of benefit costs for companies. Benefits make up about 30% of the total price of employee compensation. Benefit costs increased 0.4% in the fourth quarter but fell significantly from the 0.7% increase in the third quarter. The 0.4% rise reflected the smallest increase to benefit costs since the second quarter of 2015.

Wages and salaries, which account for the remaining 70% of employee compensation costs, increased 0.5%.

With the unemployment rate hovering just under 5%, the data suggests companies are boosting salaries to attract and retain top talent. Wages and salaries swelled slightly by 2.3% during 2016, a significant increase from the 1.7% jump in the 12-month period ending in December 2015.

The travel and leisure sector experienced some of the largest increases in compensation cost last year (3.3%), while companies in the professional and business services sector experienced the smallest increases (1.2%), according to the BLS.

Wages for state and local government employees were up 0.5% in the fourth quarter and increased 2.1% year-over year, while benefit costs rose 0.7% in the last three months of the year and 3.1% in all of 2016. Similarly, private industry wages increased 0.5% in the quarter, while benefit cost increases slowed.

According to the Employer Costs for Employee Compensation index also published by the BLS, the average price of compensating an employee was $34.15 per hour in September 2016, the most recent data available. Salaries and wages cost the average company $23.42 per hour in September, and employee benefits tacked on an additional $10.73 per hour.