Employers continued to raise wages to attract workers and retain existing workers throughout the third quarter. But the increases did not keep pace with inflation, and the continued increase is good news for the Federal Reserve, as higher wages could help with overall inflationary pressures, which the central bank is trying to lower.
Wages and salaries for civilian workers rose 1.3% in the third quarter and 5.1% in the year ended September, according to the Bureau of Labor Statistics quarter. The employment cost index was released on Friday. This represents a slight slowdown from the second quarter, when wages and salaries rose 1.4% quarter-on-quarter and 5.3% in the year ended June.
Economists had expected the index to grow 1.2% in the third quarter, according to Refinitiv consensus estimates.
However, inflation has eaten into these gains. After adjusting for rising prices, wages and salaries fell 3% in the year ended September. They fell by 3.5% in the year that ended in June.
Leisure and hospitality workers, as well as retail workers, have gained in real wages since December 2019, according to an analysis of quarterly data by Harvard University economics professor Jason Furman.
The former received a salary increase of 1.3%, while the latter had a 0.5% increase, after taking inflation into account. All other industries experienced wage declines, Furman found.
Overall, private sector workers have seen their wages drop by 0.9% since December 2019, the last quarter before the start of the pandemic.
Employer compensation costs, which include wages and benefits, rose 1.2% in the third quarter, before accounting for inflation. That compares to a 1.3% increase in the second quarter. However, for the year ended September, total compensation costs rose 5%, slightly lower than the 5.1% increase for the year ended June.
“While moving in the right direction, the data shows that strong labor demand continues to keep compensation high,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “These readings will only help support the Fed’s current dovish policy stance.”
The Fed watches the Employment Cost Index closely to monitor how much rising inflation is pushing up wages, a factor in deciding how much to raise interest rates. The central bank has raised interest rates three times this year by three quarters of a percent in efforts to reduce inflation, and it is expected to continue in this way in the meeting that will take place next week.
The ECI tracks changes in employer labor costs for wages and salaries, along with health, retirement and other benefits. The index is not subject to the same distortions as other measures, such as average hourly earnings, because it holds the composition of the workforce constant.
Notably, compensation for state and local government workers accelerated significantly in the last quarter, like the public sector look for to fill many jobs. Compensation rose 1.9% in the third quarter, compared with 0.8% in the previous quarter, and 4.6% in the year ended September, compared with 3.4% in the year ended June, before accounting for inflation.
Public sector employment remains nearly 600,000 jobs, or 2.6 percent, down from where it was before the pandemic in February 2020, according to the Bureau of Labor Statistics. September jobs report.
Workers’ compensation in private industry slowed slightly, growing just 1.1% in the latest quarter, compared with 1.5% in the previous period, and 5.2% for the year ended September, compared with 5.5% for the year ended June. before. accounting for inflation.
Private sector employment returned to pre-pandemic levels earlier this year.