Washington, DC, October 31, 2006--The cost of keeping an employee on the payroll rose 1% in the third quarter, the biggest increase since 2004 and a signal that the tight labor market could be fueling inflation, the Labor Department said Tuesday.
In the past year, employment costs are up 3.3%, the fastest year-over-gain in five quarters.
It's the first time compensation costs have risen faster than inflation in two years. Inflation measured 2.1% in the 12 months ending in September.
A year ago, inflation-adjusted wages were down 2.3%, but were up 1.1% in the third quarter of this year.
The Federal Reserve has warned that high levels of resource utilization could fuel inflation. With the unemployment rate falling to 4.6%, tight labor markets could force bosses to raise prices to pay for the higher wages to keep qualified workers.
Economists were expecting employment costs to rise 0.9% for the second straight quarter.
The costs of wages and salaries increased 0.9% in the third quarter, identical to the second-quarter gain.
The cost of providing benefits, such as retirement, health insurance and vacations, rose 1.1% in the quarter, the biggest increase in a year following a 0.8% increase in the second quarter.
Over the past year, wages are up 3.2% while benefit costs are up 3.3%. Costs were better contained in the private sector than in government, and non-union employees received larger gains than unionized employees.
In the private sector, employment costs rose 0.9% in the quarter and are up 3% in the past year. Wages rose 0.8% in the quarter and 3% in the past year.
Benefit costs rose 1% in the quarter and 2.8% in the past year.
In the state and local government sector, employment costs rose 1.4% in the quarter and 4.1% in the past year. Wages rose 1.4% in the quarter and 3.7% in the past year. Benefit costs rose 1.5% in the quarter and 5.2% in the past year.
