Employee Benefits and Compensation

Bearing the Higher Cost of Labor: Weekly Stat

The gap between the rate of growth in the Employment Cost Index and inflation widened in March.
Bearing the Higher Cost of Labor: Weekly Stat
Photo: Getty Images

Medical waste disposal and compliance company Stericycle reported first-quarter earnings last week and like many organizations disclosed rising labor costs. The increases came mostly from raising wages for existing employees and paying higher starting salaries, said CFO Janet H. Zelenka.

But Stericycle also had to absorb paying for more overtime due to labor shortages and increased COVID-19 absences, and the “lower productivity associated with [the] training of new team members,” Zelenka said on the earnings call.

Stericycle has pricing levers it can pull. But the latest U.S. inflation and employment cost data suggest that for many companies payroll and human capital expenses could jump higher still.

March’s personal consumption expenditures price index (including food and energy) rose 6.6% from a year ago — the fastest inflation rate since January 1982. But wage and benefit increases have not kept pace, even nominally.

The Employment Cost Index released by the Bureau of Labor Statistics on April 29 showed a 4.5% year-over-year rise in compensation (wages, salaries, and benefits). (See chart.) Measured in inflation-adjusted (“real”) dollars, though, the costs dropped 3.7%. (The BLS uses the Consumer Price Index in the calculation.)

If inflation just sustains this pace, consumer finances will be strained. U.S. households may already be pruning purchases and raiding balance sheets built up during pandemic lockdowns. The U.S. personal saving rate fell in March, according to the Bureau of Economic Analysis, and consumers’ inflation-adjusted disposable incomes fell.

Holding onto talented workers and filling open jobs is still a 2022 objective for many U.S. companies. The question is, how much will it cost? At some point, consumers and businesses will balk when presented with further price hikes by organizations suffering from the mounting cost of maintaining a stable, qualified workforce.

The U.S. job market may slacken, albeit gradually, from higher interest rates. But most CFOs won’t count on it. U.S. companies have to find short- and long-run solutions to raising productivity. That means redoubling efforts around “innovation, restructuring, digital transformation, automation, improving efficiency, and investment in new business models,” a Conference Board report stated last week. Look for plenty of that activity as the year rolls on.