U.S. Bureau of Labor Statistics
Employment Cost Trends
The National Compensation Survey (NCS) provides comprehensive measures of occupational earnings; compensation cost trends (including the Employment Cost Index (ECI) and the Employer Costs for Employee Compensation (ECEC)), and detailed benefit provisions.
Data uses in private and public sectors
- Aid collective bargaining negotiations;
- Evaluate benefit packages;
- Analyze contract settlements;
- Guide decisions in business or plant location;
- Assist in wage and salary administration;
- Adjust wages in long-term contracts.
- Formulate and assess public policy;
- Aid collective bargaining negotiations;
- Evaluate benefits packages;
- Analyze contract settlements;
- Index Medicare payments;
- Formulate monetary policy.
For more detailed information, please see the "Examples of Data Use" below.
COMPENSATION COST TRENDS
Examples of ECI/ECEC Data Use
Federal pay adjustments - The ECI is used to determine Federal white-collar pay adjustments under the Federal Employees Pay Comparability Act.
Active-duty military pay adjustments - In November 2003, Congress passed a permanent law requiring that annual basic pay increases for active-duty
military personnel be indexed to the annual increase in the ECI, for Fiscal Year 2007 and beyond. (Section 602 of the Fiscal Year 2004 National Defense Authorization Act;
and P.L. 108-136, November 24, 2003; 117 Stat. 1498, amending 37 USC 1009.) However, since FY 2004, Congress has enacted special legislation for each fiscal year known as
a "National Defense Authorization Act" which sets the annual military increase superseding 37 USC 1009. Prior to this legislation, active-duty military personnel wages
had been linked to the annual percent increase in the General Schedule (GS) federal civil service pay scale under the Federal Employees Pay Comparability Act of 1990.
In 1999, with a widening pay gap between military and private industry pay, Congress acted to set annual military pay increases to the annual increase in the ECI plus 0.5
percent, which was in effect for Fiscal Years 2001-2006.
US economic policy decisions - The Federal Reserve uses the ECI as a major economic indicator for monetary policy decision making.
Escalator clauses in collective bargaining contracts -Wage escalator clauses can allow for a pay increase that is dependent upon results of the ECI.
Escalator clauses in US government contracts - Various ECI series are used as labor cost escalators in US government contracts. For example, the production and logistics division of the Department of Defense uses the wages and salaries and benefit costs series as escalators in numerous defense contracts, including contracts for computer research. The Contracts Division of the Environmental Protection Agency uses the total compensation private industry/white-collar series as the designated cost escalator in at least 10 contracts for systems design services.
Adjustments to Medicare reimbursements for hospital, physician, and related services - The U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, uses data from the ECI to determine allowable increases in reimbursements to hospitals, skilled nursing facilities, home health care organizations, and physicians under Medicare's Prospective Payment Systems (PPS). The PPS designates the level of reimbursement for Medicare-covered services, based on the diagnosis and geographic location of care.
PPS reimbursements are adjusted annually based on a number of factors, including changes in compensation for medical and related personnel. Additional information can be obtained in The Employment Cost Index and the Impact on Medicare Reimbursements (PDF). ECI data are used for many of these compensation changes. For example:
- ECI data account for about 70 percent of the input price index used to determine allowable increases in reimbursements for hospital charges. Thus, a 1 percent increase in the ECI would result in .70 percent increase in hospital reimbursements. In 2006, Medicare inpatient hospital reimbursements totaled over $125 billion. A 3 percent annual increase in the ECI would result in an increase of over $2.5 billion in annual hospital reimbursements.
- ECI data account for about 68 percent of the input price index used to determine allowable increases in reimbursements for charges from skilled nursing facilities. Medicare reimbursed over $21 billion in skilled nursing facility charges in 2006.
- ECI data account for about 85 percent of the input price index used to determine allowable increases in reimbursements for changes for home health care. Medicare reimbursed nearly $14 billion in home health care charges in 2006.
- ECI data account for about 28 percent of the Medical Economic Index, used to determine increases in Medicare reimbursements for physician's services. Medicare reimbursed over $58 billion in physician's service charges in 2006.
Pennsylvania Department of Education - The Pennsylvania Department of Education uses the Employment Cost Index as an inflationary measure to determine how much school districts can raise property taxes each year. Pennsylvania began using the Employment Cost Index in 2005 after the General Assembly passed and Governor signed a new local tax reform alternative, Act 72, which is entitled "The Homeowner Tax Relief Act." This tax reform initiative was designed to reduce the property tax burden on Pennsylvania residents.
As part of this legislation, the Pennsylvania Department of Education started using the ECI as a component in creating a base inflation index in order to determine the maximum school district property tax increase allowed.
The base index is calculated by averaging the percent increases in the Pennsylvania Statewide average weekly wage (as determined by the Pennsylvania Department of Labor) and the annual percent change in the ECI (looking at Quarter 2 data) for the elementary and secondary school series.
For example, the 2008-2009 school year—
Percent increase in Statewide weekly wage: 4.3%
Percent annual ECI increase (QTR 2 2007): 4.5%
Base inflation index : 4.4%
Further adjustments are made to each individual school district's inflation index based on the district's relative market value and personal income valuation, compared to the statewide average. For school districts with a market value/personal income aid ratio (MV/PI AR) greater than 0.4000, the value of their index is adjusted upward by multiplying the base index by the sum of 0.75 and their MV/PI AR.
For example, the Scranton school district-
State base inflation index: 4.4%
Scranton MV/PI aid ratio: .6999
Adjusted index= 4.4% X (.75 + .6999) = 6.4%
Therefore, the Scranton school district can raise property taxes no more than 6.4%.
The "Homeowner Tax Relief Act" did not mandate that school districts participate, but in 2006 Pennsylvania legislators passed another bill entitled the "Taxpayer Relief Act," which required that all school districts comply with the new policies. As such, all property owners and school districts in Pennsylvania are now affected by the ECI-derived base index.
Economic price adjustments in long term purchase contracts - Long-term purchase contracts may specify the ECI is to be used to adjust the labor cost portion of contracts.
Escalator clauses in foreign government contracts - Foreign governments sometimes use ECI series in contracts with US firms. For example, the Government of Switzerland uses the manufacturing durable goods series as a wage escalator in a contract with a US firm that makes computers.
Economic consulting/forecasting - Various ECI series are used in models for economic forecasting, including forecasting the ECI values for clients' use in budgeting and other activities. ECI series are also used in developing inflation indexes of personnel and other costs for elementary and secondary schools and colleges.
Costs associated with employee compensation - Employer Costs for Employee Compensation focuses on costs associated with providing total compensation packages that includes wages/salaries and benefits. A user can look at this publication and see what amount of a total compensation figure is attributed to wages/salaries and various benefits per hour worked.
For example, the United Auto Workers (UAW) have posted tables using ECEC data on their website under "The Union Advantage at a Glance" every quarter since December 2006. (Disclaimer: Links to non-BLS Internet sites are provided for your convenience and do not constitute an endorsement.) The tables highlight wage and benefit data from the ECEC for union and nonunion workers in private industry, and goods-producing and service-providing industries.
Examples of Benefits Data Use
Planning and improving company benefits - BLS data are commonly used as a guide when companies choose the provisions for their benefit plans. In addition, companies may improve benefit packages to remain competitive in the labor market. For example, a computer company may have a difficult time finding qualified computer engineers; or, a car dealership may not be able to attract the best salesperson. Instead of simply raising the wage, many companies will enhance or add new benefits.
Lowering turnover rates - To attract and retain workers, employers may provide additional benefits. These prospective benefits may be traditional or emerging. Employers can search the benefits data to evaluate benefits that employees are currently being offered nationwide.
Aiding collective bargaining negotiations - Collective bargaining units go through re-negotiation of their contracts at various times. The bargaining unit may want to add a new benefit to an agreement like subsidized commuting. The bargaining unit and the employer can use the benefits data to assist them in making decisions.
Understanding health benefits data - Health benefits data are broken out into average contributions for medical coverage and average plan limits. A new company can reference these averages when selecting group health plan coverage - comparing the averages to proposals that health plan companies have given the new company. An established company can compare its current premiums paid for health benefits to the averages nationwide. This helps the established company assess their health benefits or negotiate contracts with health benefit companies.
Assessing and formulating public policy - BLS benefits data were used to design defined benefit and savings and thrift plans for federal employees. In the debate over a universal health care system, benefits data on employee premium sharing was considered in formulating proposals. Data on the amount of retirement income from employer plans has helped to frame the debate over social security reform. Policy makers used our benefits data when drafting the Patient Protection and Affordable Care Act of 2010.
Researching current benefit issues - Students, consultants, and researchers use benefits data frequently. Students may be writing a thesis or trying to identify a noteworthy item on which to focus an assignment. Consultants may be trying to recommend benefit actions to a company or provide supporting data to clients. Researchers sometimes want to investigate a particular issue in benefits or may focus on a few years of previous data to develop research on trends or other benefit issues.
Last Modified Date: January 31, 2013