TECHNICAL NOTE

     The Employment Cost Index (ECI) is a measure of the change in the cost of labor, free from the influence
of employment shifts among occupations and industries.  The compensation series includes changes in wages and
salaries and employer costs for employee benefits.  The wage and salary series and the benefit cost series
provide the changes for the two components of compensation.

     Wages and salaries are defined as the hourly straight-time wage rate or, for workers not paid on an hourly
basis, straight-time earnings divided by the corresponding hours.  Straight-time wage and salary rates are
total earnings before payroll deductions, excluding premium pay for overtime and for work on weekends and
holidays, shift differentials, and nonproduction bonuses.  Production bonuses, incentive earnings, commission
payments, and cost-of-living adjustments are included in straight-time wage and salary rates.

     Benefits covered by the ECI are:  Paid leave--vacations, holidays, sick leave, and personal leave;
supplemental pay--premium pay for work in addition to the regular work schedule (such as overtime, weekends,
and holidays), shift differentials, and nonproduction bonuses (such as year-end, referral, and attendance bonuses);
insurance benefits--life, health, short-term disability, and long-term disability; retirement and savings
benefits--defined benefit and defined contribution plans; and legally required benefits--Social Security,
Medicare, federal and state unemployment insurance, and workers’ compensation.

     The ECI provides data for the civilian economy, which includes the total private nonfarm economy excluding
private households, and the public sector excluding the federal government.  The private industry series and
the state and local government series provide data for the two sectors separately.

     Sample establishments are classified by industry categories based on the 2007 North American Industry
Classification System (NAICS).  Prior to December 2007, the 2002 NAICS classification system was used.
Differences between the two NAICS systems did not affect any of the published ECI series.  All industries are
classified into two sectors--goods-producing and service-providing.  Within a sample establishment, specific
job categories are selected and classified into about 800 occupational classifications according to the
2000 Standard Occupational Classification (SOC) system.  Individual occupations are combined to represent one
of ten intermediate aggregations, such as professional and related occupations, or one of five higher-level
aggregations such as management, professional, and related occupations.  Both the NAICS and the SOC
classification systems are defined by the U.S. Office of Management and Budget (OMB).  For more detailed
information on NAICS and SOC, including background definitions, see the BLS Web sites:
www.bls.gov/bls/naics.htm and www.bls.gov/soc/home.htm.

     To be included in the ECI, employees in occupations must receive cash payments from the establishment
for services performed and the establishment must pay the employer’s portion of Medicare taxes on that
individual’s wages.  Major exclusions from the survey are the self-employed, individuals who set their own
pay (for example, proprietors, owners, major stockholders, and partners in unincorporated firms), volunteers,
unpaid workers, family members being paid token wages, individuals receiving long-term disability compensation,
and U.S. citizens working overseas.

     Data for the September 2008 quarter were collected from a probability sample of approximately 56,000
occupational observations selected from a sample of about 12,000 establishments in private industry and
approximately 11,800 occupations from a sample of about 1,900 establishments in state and local governments.
The state and local government sample, which is replaced less frequently than the private industry sample,
was replaced in its entirety in September 2007.  As a result of this replacement, the number of state and
local government occupations and establishments increased substantially.  The private industry sample is
rotated over approximately 5 years, which makes the sample more representative of the economy and reduces
respondent burden.  Data are collected for the pay period including the 12th day of the survey months of
March, June, September, and December.  The sample is replaced on a cross-area, cross-industry basis.

     Fixed employment weights are used each quarter to calculate the most aggregate series—civilian, private,
and state and local government.  These fixed weights are also used to derive all of the industry and
occupational series indexes.  Beginning with March 2006 estimates, 2002 fixed employment weights from the
Bureau’s Occupational Employment Statistics survey were introduced.

     For the series based on bargaining status, census region and division, metropolitan area status, and for
series excluding incentive paid occupations, fixed employment data are not available.  The employment weights
are reallocated within these series each quarter based on the current ECI sample.  The nursing care facilities
indexes in private industry are estimated using fixed-employment weights derived from staffing patterns
estimated from the four-digit industry NAICS group 6231, nursing care facilities, a sub-industry of the larger
industry group, nursing and residential care facilities (NAICS 623).  The indexes for these series, consequently,
are not strictly comparable with those for the aggregate, occupational, and industry series.  A fuller
explanation of the calculation of index numbers appears in chapter 8 of the BLS Handbook of Methods, at the
web site www.bls.gov/opub/hom/pdf/homch8.pdf.

     Beginning with the release of the March 2006 data, indexes were rebased to December 2005=100 from
June 1989=100.  The percentage changes shown in the current- and constant-dollar historical tables were
calculated from the rebased indexes.  Thus, changes may differ from those originally published because of
rounding.

     The ECI state and local government sample consists of 152 areas that represent the Nation's 361 metropolitan
statistical areas and 573 micropolitan statistical areas as defined by OMB in December 2003 and the remaining
portions of the 50 states.  The ECI private industry sample consists of 151 metropolitan areas and
nonmetropolitan areas that represent the Nation's 326 metropolitan statistical areas as defined by OMB in
1994 and the remaining portions of the 50 states.  Metropolitan areas are defined as Metropolitan Statistical
Areas (MSAs) or Consolidated Metropolitan Statistical Areas (CMSAs).  Nonmetropolitan areas are counties and
other geographic designations that do not fit the metropolitan area definition.  The private industry estimates
will begin the conversion to December 2003 OMB areas definitions in December 2008.

     Seasonally adjusted data for selected ECI series began with the December 1990 ECI release.  Seasonal
adjustment removes the effects of events that follow a more or less regular pattern each year.  These
adjustments make nonseasonal patterns easier to identify.  The seasonal adjustment factors are recalculated
once per year.  The March release contains data reflecting the newly updated seasonal adjustment factors.
The historical data for the last five years are then revised based on the newly estimated factors.  The seasonal
factors for 2008 and revised seasonally adjusted indexes for the past 5 years are available at
www.bls.gov/ect/ectsfact.htm or upon request.  Several new seasonally adjusted indexes and 3-month percent
changes of occupational series were added this quarter, with historical data available beginning with
March 2003.

     Because the ECI is a sample survey, it is subject to sampling errors.  Sampling errors are differences that
occur between the results computed from a sample of observations and those computed from all observations in
the population.  The estimates derived from different samples selected using the same sample design may differ
from one other.  A measure of the variation among these differing estimates is the standard error.  It can be
used to measure the precision with which an estimate from a particular sample approximates the expected result
of all possible samples.  The chances are about 68 out of 100 that an estimate from the survey differs from a
complete population figure by less than the standard error.  The chances are about 90 out of 100 that this
difference would be less than 1.6 times the standard error.  The statements of comparisons appearing in this
publication are significant at a 1.6 standard error level or better, unless otherwise indicated.  This means
that for differences cited, the estimated difference is greater than 1.6 times the standard error of the
difference.

     The ECI uses standard errors to evaluate published series.  To assist users in ascertaining the reliability
of series, the standard errors for all estimates (excluding seasonally adjusted series) are available on the
BLS Web site at www.bls.gov/ect/ectvar.htm shortly after the publication of the news release.

     When determining data to be used in contract negotiations, it is important to note that differences by
bargaining status may be due to factors other than union status, such as occupational and industry mix.
An important consideration when choosing a series for escalation is the sampling error.  For more information,
see www.bls.gov/ect/escalator.htm.

     More detailed information on the ECI is available from several sources.  These include a chapter, "National
compensation measures," (www.bls.gov/opub/hom/pdf/homch8.pdf) from the BLS Handbook of Methods, and several
articles published in the Monthly Labor Review and Compensation and Working Conditions.  The articles and other
descriptive pieces are available at www.bls.gov/ect/#publications, by calling (202) 691-6199, or sending e-mail
to NCSinfo@bls.gov.

     Historical ECI data, using industry categories based on the Standard Industrial Classification (SIC) System
and classifying jobs into occupational classifications according to the Census of Population, are available
dating from the first publication of each series to December 2005 at:  www.bls.gov/web/echistry.pdf.  Data
are also available for series based on the 2002 and 2007 North American Industry Classification Systems (NAICS)
and the 2000 Standard Occupational Classification (SOC) beginning in March 2001, using December 2005=100 as
the base period at:  www.bls.gov/web/echistrynaics.pdf.

     In addition, constant-dollar ECI series derived from the Consumer Price Index for All Urban Consumers (CPI-U)
are available.  The constant-dollar series are calculated by converting the CPI-U to the same base as the ECI.
The ECI for each quarter is then divided by the converted CPI-U for the same reference period.  The CPI-U
U.S. City Average All Items is used to compute all series except for the regional estimates, which use
corresponding CPI regional data.

     Supplemental data from the ECI, providing 12-month percent changes in employer costs for health insurance in
private industry, are also available at www.bls.gov/ect/sp/echealth.pdf.

     The costs per hour worked of compensation components, based on data from the ECI, are published in a
separate news release titled "Employer Costs for Employee Compensation" (ECEC).  The next ECEC release is
scheduled for 10:00 AM EST, Wednesday, December 10, 2008.  Historical ECEC data are available in summary
documents.  Both the release and historical data are available at www.bls.gov/ect, by email to NCSinfo@bls.gov,
or by calling (202) 691-6199.  Since the ECEC is calculated with current employment weights rather than
the fixed weights used in computing the ECI, year-to-year changes in the cost levels usually differ from
those in the ECI.