Analyzing Employers' Costs for Wages, Salaries, and Benefits

By Nathan, Felicia | Monthly Labor Review, October 1987 | Go to article overview

Analyzing Employers' Costs for Wages, Salaries, and Benefits


Nathan, Felicia, Monthly Labor Review


Analyzing employers' costs for wages, salaries, and benefits

Employee compensation in private industry cost employers $13.42 per hour worked in March 1987. Straight-time wages and salaries--73.2 percent of the costs--averaged $9.83, while benefit costs--the remaining 26.8 percent-- averaged $3.60.

These costs are based on data from the Bureau of Labor Statistics Employment Cost Index (ECI) which measures quarterly changes in employer costs for employee compensation. The ECI is a fixed-weight Laspeyres index that uses 1980 census employment counts as weights. Data collected for the ECI can be used to derive compensation cost levels at no additional burden on survey respondents, but current employment weights are required. The BLS Current Employment Statistics survey in combination with the ECI sample provide the current weights.

The ECI's establishment sample has been recently expanded, making it possible to produce estimates of compensation cost levels that are sufficiently reliable for analysis and publication. The Bureau plans to publish compensation cost estimates from the ECI sample annually, using March as the reference period. The estimates will be available in midsummer.

This article presents cost estimates for the components of compensation for private industry workers,1 by industry division and occupational group. In addition, relative errors associated with the estimates and costs as a percent of total compensation are shown. This article also discusses high-lights of the compensation cost estimates, illustrates how the estimates were calculated, and briefly explains the standard errors associated with the estimates.

Compensation costs

During the post-World War II era, employee benefits have become an important part of labor costs and worker income. Today, slightly more than one-fourth of employee compensation is in some form of benefit. The largest category is legally required benefits, which accounts for 8.4 percent of total compensation costs. (See chart 1.) These legally required benefits include Social Security, workers' compensation, and unemployment insurance as well as other less common benefits, such as railroad retirement and State temporary disability benefits. Employer costs for legally required benefits averaged $1.13 per hour worked in March 1987--nearly a third of all benefit costs.

Lump-sum payments, provided in lieu of wage increases or to offset wage decreases, are becoming more widespread, particularly in collective bargaining agreements. Nevertheless, they still account for a very small part of total compensation. These payments are included in the supplemental pay category, which averaged less than 3 percent of employer compensation costs.

Wages and salaries plus benefits that are paid in cash to the employee (paid leave and supplemental pay) accounted for 82.5 percent of total compensation costs per hour worked. The remaining 17.5 percent of employer costs was made up of noncash benefits purchased for the employee. These noncash benefits include insurance, pensions and savings, legally required and other benefits, such as supplemental unemployment plans and merchandise discounts in department stores.

By industry division. Hourly employer compensation costs were, on average, higher in goods-producing industries ($15.86) than in service-producing industries ($12.41).2 However, within the service-producing sector, there was substantial variation in compensation costs. Among the service-producing industries for which data were published, costs were highest in transportation and public utilities ($20.24 per hour worked) and wholesale trade ($15.15), and lowest in service industries ($12.34) and retail trade ($7.85). (See chart 2.)

As noted previously, wages and salaries alone make up the major portion of compensation costs in all industries. However, the wage and salary proportion of compensation costs was less in relatively high-paid industries than in other industries. …

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