Academic journal article Monthly Labor Review

Transitional Employment Cost Indexes for Seasonal Adjustment

Academic journal article Monthly Labor Review

Transitional Employment Cost Indexes for Seasonal Adjustment

Article excerpt

As part of its conversion to the 2002 North American Industry Classification System and the 2000 Standard Occupational Classification System, the Bureau of Labor Statistics estimated transitional historical indexes to implement seasonal adjustment

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As part of the National Compensation Survey (NCS) of the Bureau of Labor Statistics (BLS), the Employment Cost Index (ECI) provides quarterly measures that represent the change in employers' labor costs per employee hour worked, exclusive of shifts in employment among industries and occupations. (1) The ECI program publishes indexes and 3- and 12-month percent change estimates for total compensation, wages and salaries, and total benefits. Since 1975, the ECI has been computed from survey information on a sample of establishments and jobs weighted to represent the universe of establishments and occupations in the US. economy. The ECI is a principal Federal economic indicator that has many uses, both public and private, including formulating monetary policy, indexing hospital charges for Medicare reimbursement, adjusting Federal Government pay, and adjusting wages in long-term contracts.

After more than a quarter of a century, the ECI program has switched to new industry and occupational classifications, as required by Office of Management and Budget mandates stating that all Federal statistical agencies which produce industry or occupation statistics shall adopt the North American Industry Classification System (NAICS) (2) and the Standard Occupational Classification System (SOC). (3) Before the conversion to NAICS and SOC, the ECI program had been using the Standard Industrial Classification (SIC) (4) system and the BLS Occupational Classification System (OCS). (5) Among the changes to the ECI made in response to the mandates were changes for seasonal adjustment purposes. (6)

The focus of this article is the construction of the transitional time series that were used to derive seasonal factors for seasonal adjustment of the NAICS and SOC-based ECI, published beginning in April 2006 with the release of the March 2006 ECI estimates. (7) These historical transitional series are independently calculated estimates that include data classified by NAICS and SOC with the use of both field coding and national office recoding. As part of the conversion of the ECI to NAICS and SOC, special computations outside the ECI quarterly production system were needed to create 10-year data spans for seasonal adjustment. Ten years is the specific period of historical indexes used in ECI seasonal factor estimation. (8) The sections that follow summarize the seasonal adjustment methodology, examine differences between the classification systems, and discuss the methodology, data, and computations related to the construction of the transitional ECI series. The article also presents selected transitional estimates (not seasonally adjusted) classified by NAICS and SOC and compares those estimates with their counterparts from SIC and OCS, respectively. The comparisons use absolute difference meas-ures to quantify differences.

The article complements an earlier one by E. Raphael Branch and Lowell Mason (9) on seasonal adjustment of the ECI and the conversion to NAICS and SOC. It also follows an earlier article by Harriet G. Weinstein and Mark A. Loewenstein (10) that compared both NAICS with SIC and SOC with OCS sample employment and cost levels of the Employer Costs for Employee Compensation (ECEC) data series, which BLS converted to NAICS and SOC in 2004. That article compared ECEC data at a single point in time, whereas the approach presented here compares transitional ECI estimates over a 10-year period.

Seasonal adjustment methodology

Over a given period, rates of change in the cost of compensation in certain industries, as measured by the ECI, reflect events that follow a regular pattern. These events include natural fluctuations of economic activity that occur at specific times of the year, such as heightened activity in the construction or leisure and hospitality industry during warm weather. …

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