Compensation for U.S. workers picked up again in the second quarter of the year, but at a slightly slower pace, evidence that employers are continuing to remain competitive with pay but that inflation pressures appear to be leveling off.
Workers were paid 1 percent more in the second quarter than the first quarter, the Bureau of Labor Statistics (BLS) reported July 28 in its quarterly Employment Cost Index (ECI). That’s slightly slower from the 1.2 percent climb seen in the first quarter. Wages and salaries increased 1 percent and benefit costs increased 0.9 percent from March 2023.
Compensation costs in the U.S. for private sector workers—including pay and benefits—rose 4.5 percent year-over-year, the ECI found. Comparatively, the first quarter index, released in April, found that wage growth grew 4.8 percent year-over-year.
Wages and salaries increased 4.6 percent for the 12-month period ending in June 2023 and rose 5.7 percent in June 2022, the ECI found. Meanwhile, the cost of benefits increased 3.9 percent for the 12-month period ending in June 2023 and grew 5.3 percent in June 2022.
“Today’s ECI data confirms what other indicators have been suggesting: wage growth is cooling,” Cory Stahle, economist at Indeed, tweeted.
The index, which measures the change over time in labor costs and is released quarterly by the agency, is considered an important gauge of inflation. Economists say higher wages can contribute to overall inflationary pressures, which the Federal Reserve is trying to bring down. The Fed watches the Employment Cost Index, as well as the BLS Consumer Price Index, closely as it determines interest rates.
Overall inflation has cooled steadily over the past several months, easing to 3 percent in June, according to the latest Consumer Price Index. That’s down significantly from a 40-year high of 9.1 percent last June.
Employers have turned to more competitive pay raises for the past couple of years as a result of both high inflation and a tight labor market. Consulting firm Mercer reported earlier this year that U.S. employers reported 2023 annual merit increases have averaged 3.8 percent, while total compensation—which includes merit awards as well as all other types of compensation increases impacting base pay, such as promotional, cost-of-living and minimum wage—increased by 4.1 percent. Seattle-based compensation software firm Payscale reported that 92 percent of organizations gave raises in 2022, while 80 percent plan to do so in 2023.
While the red-hot pace of both inflation and the job market is starting to cool, analysts say that wages will likely continue to remain competitive as employees continue to feel the sting of months of high costs-of-living.