Tracking Employer Costs for Wages and Benefits

Wednesday, February 22, 2023

The BLS Employment Cost Index (ECI) tracks changes in employer costs for wages and salaries and employee benefits. As the following chart shows, sometimes the cost of wages and salaries rises more than the cost of benefits, and sometimes the opposite is true.

Editor’s note: Data for this chart are available in the table below.

More recently, both costs have been rising rapidly, well above historic norms. Let’s dig a little deeper to understand the relationship between the cost of wages and salaries and the cost of benefits, focusing on workers in private industry.

Capturing the cost of wages and benefits

BLS surveys a sample of employers each March, June, September, and December to update their costs for the wages, salaries, and benefits of a fixed group of occupations. We use these data to produce quarterly and annual measures of change, as well as index numbers to track changes back to the program’s inception in the mid-1970s.

We standardize the cost information into dollars and cents per hour worked and publish the dollar amounts each quarter as the Employer Costs for Employee Compensation series. We can use these data to determine the total cost of employment per hour worked and the percent of the total cost attributed to wages and salaries and each benefit.

In March 2022, private employer costs for wages and salaries averaged $27.19 per hour worked, and represented 70.4 percent of compensation costs, while benefits costs averaged $11.42 per hour worked, or 29.6 percent of the total.

BLS captures the costs of 5 broad categories of benefits and 18 specific benefits for each surveyed occupation. The following chart shows the share of total costs attributed to wages and salaries and each category of benefits in March 2022. Insurance made up 7.6 percent of private employer compensation costs, with the largest portion of that going toward health insurance.

Editor’s note: Data for this chart are available in the table below.

How benefit costs are related to wages

Costs for several benefits are directly affected by the cost of wages and salaries. These include leave benefits, for which employees receive full or partial wages; certain disability and life insurance premiums, for which benefits and premiums are based on employees’ pay; defined contribution plans, such as 401(k) plans, for which employers contribute a percentage of earnings to employees’ accounts; overtime and shift differentials (if based on a percentage of pay); and most legally required benefits (such as Social Security), with premiums tied to earnings. Because of the relationship to pay, trends in the ECI for benefits often follow trends in wages and salaries.

Consider a few examples. Suppose an employer increases wages by 10 percent, from $20 to $22 per hour. The same employer contributes 5 percent of each employee’s pay into their 401(k) plan. With the pay raise, the contribution increases from $1 per hour to $1.10 per hour, an increase of 10 percent. If the ECI tracked only wages and retirement benefits, both would show the same 10-percent increase. Similarly, a 10-percent increase in pay would result in an identical increase in the cost of most paid leave benefits, such as vacations or holidays, which are typically provided at full pay.

But not all benefits have costs tied to wages. Notably, the cost of health insurance is not tied to wages. BLS has been publishing trends in private employer health insurance costs for decades. As the following chart shows, those costs can be volatile and can differ from trends in the overall cost of benefits.

Editor’s note: Data for this chart are available in the table below.

We can’t estimate precisely what share of benefit costs are related to wages, but we can offer some educated guesses. Of the nearly 30 percent of compensation costs that private employers spend on benefits:

• 7.5 percent goes toward paid leave, which is mostly wage related.

• 1.1 percent goes toward overtime and shift differentials, also mostly wage related.

• 0.4 percent goes toward insurances other than health insurance; many of these insurances have benefits (and therefore costs) tied to wages.

• 2.3 percent goes toward defined contribution plans, such as 401(k) plans, which often have employer matching contributions based on the employee’s contribution, which is based on wages.

• 7.5 percent goes toward legally required benefits, which are often wage related, although benefits and costs may be capped at certain wage levels. More on this below.

What’s left out?

• 2.4 percent spent on nonproduction bonuses, such as year-end payments. By definition, these payments are not related to production and may not be tied to pay.

• 7.1 percent spent on health insurance.

• 1.2 percent spent on defined benefit retirement plans, which may base benefits on pay but have costs that vary with actuarial and interest rate assumptions.

So, by my simple math, 18.8 percent out of 29.6 percent, or nearly two-thirds of the cost of benefits, moves with changes in wages. Of course, these are averages, which can obscure certain details, such as variations across industries, occupations, or regions. For instance:

• Some workers may have few if any benefits beyond those legally required. In such cases, wage and benefit costs may move in tandem.

• The share of benefits costs that moves with wages may vary with wage level, as the cost for certain legally required benefits (such as unemployment insurance or Social Security) may be capped. Thus, the share of the cost that is related to wages declines as wages increase.

• Some workers may have benefits that are not tied to wages, such as fixed dollar life insurance plans or defined benefit plans tied to years of service.

We might see some of this variation by looking at the percent change in the ECI for wages and benefits for selected occupational groups. Over the past year, wages have grown faster than benefit costs for most of the broad occupational groups shown below.

Editor’s note: Data for this chart are available in the table below.

We can speculate on some of the reasons. We know that service-providing industries, such as restaurants, have been experiencing labor shortages and have therefore raised wages. We also know from our employee benefits data that these workers are offered certain benefits less often than workers in other occupational groups. I’m sure there are other factors at play here as well.

No matter the reason, it is important to track trends in the cost of wages and salaries and benefits.

Wages and salaries and benefits in private industry, 12-month percent changes, not seasonally adjusted

Month	Wages and salaries	Benefits
Mar 2001	3.8%	5.2%
Jun 2001	3.6	4.9
Sep 2001	3.5	4.9
Dec 2001	3.8	5.2
Mar 2002	3.5	4.4
Jun 2002	3.6	4.8
Sep 2002	3.1	4.3
Dec 2002	2.6	4.2
Mar 2003	2.9	5.7
Jun 2003	2.6	5.8
Sep 2003	3.0	6.3
Dec 2003	3.1	6.5
Mar 2004	2.6	6.8
Jun 2004	2.7	7.3
Sep 2004	2.6	6.7
Dec 2004	2.6	6.7
Mar 2005	2.7	5.5
Jun 2005	2.5	4.7
Sep 2005	2.3	4.5
Dec 2005	2.5	4.0
Mar 2006	2.4	3.0
Jun 2006	2.8	2.7
Sep 2006	3.0	2.8
Dec 2006	3.2	3.1
Mar 2007	3.6	2.2
Jun 2007	3.3	2.6
Sep 2007	3.4	2.4
Dec 2007	3.3	2.4
Mar 2008	3.2	3.2
Jun 2008	3.1	2.6
Sep 2008	2.9	2.4
Dec 2008	2.6	2.0
Mar 2009	2.0	1.6
Jun 2009	1.6	1.3
Sep 2009	1.4	1.1
Dec 2009	1.3	0.9
Mar 2010	1.5	2.0
Jun 2010	1.6	2.4
Sep 2010	1.6	2.8
Dec 2010	1.8	2.9
Mar 2011	1.6	3.0
Jun 2011	1.7	4.0
Sep 2011	1.7	3.3
Dec 2011	1.6	3.6
Mar 2012	1.9	2.8
Jun 2012	1.8	1.9
Sep 2012	1.8	2.2
Dec 2012	1.7	2.0
Mar 2013	1.7	2.0
Jun 2013	1.9	1.9
Sep 2013	1.8	2.0
Dec 2013	2.1	1.9
Mar 2014	1.7	1.8
Jun 2014	1.9	2.4
Sep 2014	2.3	2.3
Dec 2014	2.2	2.5
Mar 2015	2.8	2.6
Jun 2015	2.2	1.4
Sep 2015	2.1	1.4
Dec 2015	2.1	1.3
Mar 2016	2.0	1.2
Jun 2016	2.6	1.7
Sep 2016	2.4	1.8
Dec 2016	2.3	1.8
Mar 2017	2.6	1.9
Jun 2017	2.4	2.2
Sep 2017	2.6	2.4
Dec 2017	2.8	2.3
Mar 2018	2.9	2.5
Jun 2018	2.9	2.8
Sep 2018	3.1	2.5
Dec 2018	3.1	2.6
Mar 2019	3.0	2.4
Jun 2019	3.0	1.8
Sep 2019	3.0	2.0
Dec 2019	3.0	1.9
Mar 2020	3.3	1.6
Jun 2020	2.9	2.0
Sep 2020	2.7	2.0
Dec 2020	2.8	2.1
Mar 2021	3.0	2.5
Jun 2021	3.5	2.0
Sep 2021	4.6	2.6
Dec 2021	5.0	2.9
Mar 2022	5.0	4.1
Jun 2022	5.7	5.3
Sep 2022	5.2	5.0
Dec 2022	5.1	4.8

Share of employer compensation costs, private industry, March 2022

Compensation category	Percent share
Wages and salaries	70.4%
Total benefits	29.6
Paid leave	7.5
Vacation	3.8
Holiday	2.2
Sick	1.0
Personal	0.4
Supplemental pay	3.5
Overtime and premium	0.9
Shift differentials	0.2
Nonproduction bonuses	2.4
Insurance	7.6
Life	0.1
Health	7.1
Short-term disability	0.2
Long-term disability	0.1
Retirement and savings	3.5
Defined benefit	1.2
Defined contribution	2.3
Legally required benefits	7.5
Social Security	4.8
Medicare	1.2
Federal unemployment insurance	0.1
State unemployment insurance	0.4
Workers' compensation	1.2

Employer costs for health insurance and total benefits in private industry, 12-month percent changes, not seasonally adjusted

Month	Health insurance	Total benefits
Mar 1982	14.7%	6.9%
Jun 1982	16.2	7.4
Sep 1982	18.1	7.9
Dec 1982	18.3	7.1
Mar 1983	23.5	9.2
Jun 1983	22.4	8.4
Sep 1983	21.3	7.6
Dec 1983	20.4	7.5
Mar 1984	17.6	7.3
Jun 1984	15.9	7.2
Sep 1984	13.1	6.6
Dec 1984	12.5	6.5
Mar 1985	8.5	5.5
Jun 1985	6.7	4.1
Sep 1985	6.5	4.4
Dec 1985	5.2	3.5
Mar 1986	3.9	3.2
Jun 1986	3.5	3.5
Sep 1986	3.6	3.2
Dec 1986	4.1	3.4
Mar 1987	4.7	2.7
Jun 1987	6.1	3.4
Sep 1987	5.5	3.1
Dec 1987	6.3	3.3
Mar 1988	10.5	5.9
Jun 1988	12.2	6.5
Sep 1988	13.9	6.9
Dec 1988	14.7	6.9
Mar 1989	13.6	5.5
Jun 1989	13.4	5.5
Sep 1989	13.7	5.8
Dec 1989	12.8	6.2
Mar 1990	12.2	7.1
Jun 1990	12.0	7.0
Sep 1990	11.5	6.7
Dec 1990	11.3	6.7
Mar 1991	11.5	5.7
Jun 1991	11.1	6.2
Sep 1991	10.9	6.5
Dec 1991	11.2	6.2
Mar 1992	10.3	6.3
Jun 1992	9.6	5.5
Sep 1992	9.2	5.2
Dec 1992	8.6	5.2
Mar 1993	8.1	5.6
Jun 1993	7.8	5.7
Sep 1993	7.2	5.3
Dec 1993	6.9	4.9
Mar 1994	5.7	4.5
Jun 1994	5.0	4.1
Sep 1994	4.3	4.1
Dec 1994	3.9	3.7
Mar 1995	1.6	2.8
Jun 1995	0.6	2.5
Sep 1995	-0.1	2.0
Dec 1995	0.1	2.2
Mar 1996	-0.3	1.5
Jun 1996	0.1	1.7
Sep 1996	0.7	1.8
Dec 1996	0.4	2.0
Mar 1997	0.2	2.1
Jun 1997	0.7	2.0
Sep 1997	0.8	2.1
Dec 1997	0.9	2.2
Mar 1998	2.2	2.2
Jun 1998	2.6	2.7
Sep 1998	2.2	2.5
Dec 1998	2.5	2.5
Mar 1999	3.7	2.3
Jun 1999	4.0	2.4
Sep 1999	5.0	2.9
Dec 1999	5.8	3.4
Mar 2000	7.6	5.4
Jun 2000	8.0	5.8
Sep 2000	8.5	6.0
Dec 2000	8.5	5.6
Mar 2001	8.1	5.1
Jun 2001	8.6	4.8
Sep 2001	8.7	4.9
Dec 2001	9.2	5.1
Mar 2002	10.5	4.7
Jun 2002	11.4	5.1
Sep 2002	11.2	4.9
Dec 2002	10.2	4.7
Mar 2003	9.8	6.1
Jun 2003	10.3	6.2
Sep 2003	10.1	6.5
Dec 2003	10.5	6.4
Mar 2004	9.3	7.0
Jun 2004	8.1	7.3
Sep 2004	7.3	6.8
Dec 2004	7.3	6.9
Mar 2005	7.5	5.8
Jun 2005	6.3	4.9
Sep 2005	6.7	4.8
Dec 2005	6.4	4.2
Mar 2006	4.8	3.0
Jun 2006	5.2	2.7
Sep 2006	4.9	2.8
Dec 2006	4.9	3.1
Mar 2007	4.9	2.2
Jun 2007	4.8	2.6
Sep 2007	4.8	2.4
Dec 2007	4.8	2.4
Mar 2008	4.6	3.2
Jun 2008	4.2	2.6
Sep 2008	3.9	2.4
Dec 2008	3.5	2.0
Mar 2009	4.6	1.6
Jun 2009	4.4	1.3
Sep 2009	4.6	1.1
Dec 2009	4.3	0.9
Mar 2010	4.5	2.0
Jun 2010	5.0	2.4
Sep 2010	4.8	2.8
Dec 2010	5.0	2.9
Mar 2011	3.4	3.0
Jun 2011	3.6	4.0
Sep 2011	3.4	3.3
Dec 2011	3.5	3.6
Mar 2012	3.0	2.8
Jun 2012	2.4	1.9
Sep 2012	2.3	2.2
Dec 2012	2.1	2.0
Mar 2013	3.0	2.0
Jun 2013	2.6	1.9
Sep 2013	2.7	2.0
Dec 2013	3.0	1.9
Mar 2014	2.4	1.8
Jun 2014	2.7	2.4
Sep 2014	2.6	2.3
Dec 2014	2.4	2.5
Mar 2015	2.5	2.6
Jun 2015	2.8	1.4
Sep 2015	3.0	1.4
Dec 2015	3.0	1.3
Mar 2016	3.3	1.2
Jun 2016	2.8	1.7
Sep 2016	2.7	1.8
Dec 2016	2.7	1.8
Mar 2017	1.3	1.9
Jun 2017	1.2	2.2
Sep 2017	1.1	2.4
Dec 2017	1.1	2.3
Mar 2018	1.5	2.5
Jun 2018	1.6	2.8
Sep 2018	1.9	2.5
Dec 2018	1.8	2.6
Mar 2019	1.9	2.4
Jun 2019	2.3	1.8
Sep 2019	2.0	2.0
Dec 2019	2.2	1.9
Mar 2020	1.5	1.6
Jun 2020	1.9	2.0
Sep 2020	1.8	2.0
Dec 2020	1.9	2.1
Mar 2021	2.1	2.5
Jun 2021	0.4	2.0
Sep 2021	0.4	2.6
Dec 2021	0.4	2.9
Mar 2022	2.2	4.1
Jun 2022	4.6	5.3
Sep 2022	4.9	5.0
Dec 2022	4.7	4.8

Percent change in wages and salaries and benefits in private industry, by occupational group, December 2021 to December 2022

Occupational group	Wages and salaries	Benefits
Management, professional, and related	4.3%	4.7%
Sales and office	6.2	5.9
Natural resources, construction, and maintenance	4.6	3.4
Production, transportation, and material moving	5.2	4.1
Service	7.0	6.0