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July, 1988, Vol. 111, No. 7

Increases in employer costs for
employee benefits dampen dramatically

Bradley R. Braden

Rates of increase in employer costs for employee benefits in private industry have fallen substantially since 1980. The 12-month rate of change, as measured by the Bureau's Employment Cost Index (ECI) for benefits, trended downward from 11.8 percent in December 1980 to 3.5 percent in December 1987.

The slowdown in the rate of increase for benefit costs was strongly influenced by reduced rates of wage and salary gains—from 9.0 percent in 1980 to 3.3 percent in 1987. (See chart 1.) Benefits closely tied to wage movements, such as paid leave, overtime pay, and Social Security, account for almost two-thirds of total benefit costs.

Despite the strong relationship between benefit cost and wage changes, the rate of increase for benefit costs usually remained above that for wages from 1980 to 1984. The disparity resulted from higher costs for health insurance, retirement plans, and legally required benefits, such as State unemployment insurance.

By 1985, however, several factors combined to eliminate the disparity. They included lower price increases for medical services, accelerated returns on pension fund investments, employer cost containment efforts in medical and retirement benefit plans, and moderate cost increases in legally required benefits. These factors kept benefit costs rising at about the same rate as wages and salaries for the past 3 years.

This article examines benefit cost changes in private industry during the 1980-87 period. It also describes how benefit cost changes, now published as part of the Employment Cost Index program, are calculated.

This excerpt is from an article published in the July 1988 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.

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