Bloomberg News

Employment Costs in the U.S. Increased 0.4% in Fourth Quarter

January 31, 2012

Jan. 31 (Bloomberg) -- Employment expenses in the U.S. barely accelerated in the fourth quarter from the previous period’s record low, showing workers have little bargaining power in seeking higher wages.

The 0.4 percent increase in the employment cost index matched the median forecast of economists surveyed by Bloomberg News and followed a 0.3 percent third-quarter gain, Labor Department figures showed today. Wage gains for all employees also rose 0.4 percent, while benefit costs advanced 0.6 percent.

Companies have begun to hire more workers while still holding the lid on salaries to reduce costs until they see a bigger pickup in demand. Limited wage gains helps to hold down inflation, one reason Federal Reserve policy makers this month decided to keep interest rates low until at least late 2014.

“It will be a long, long time before we see meaningful wage inflation,” Christopher Low, chief economist at FTN Financial in New York, said before the report. “Structural problems in the U.S. labor markets have not gone away.”

The median estimate of 52 economists surveyed by Bloomberg projected employment costs would rise 0.4 percent. Forecasts ranged from increases of 0.3 percent to 0.7 percent.

The 0.3 percent gain in the third quarter matched increases in the first and third quarters of 2009 as the lowest since data began in 1996.

The employment cost index measures the expense to companies of wages, benefits and employer-paid taxes such as Social Security and Medicare.

Fed’s View

Fed policy makers on Jan. 25 extended their previous pledge to keep rates low as inflation remains tame and more than two years of economic growth have failed to push unemployment below 8.5 percent.

“Economic conditions -- including low rates of resource utilization and subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014,” the central bank said in a statement last week.

Over the past four quarters, employment costs rose 2 percent, matching the increase in 2010.

Last quarter’s advance in wages and salaries, which account for about 70 percent of total employment costs, followed a 0.3 percent rise in the third quarter, today’s Labor Department report showed. Wages climbed 1.4 percent from the same quarter of 2010.

Wages for state and local government workers rose 0.3 percent, following a third-quarter decrease of 0.2 percent.

State and local governments are trimming payrolls to rein in budget deficits.

Benefit Costs

Benefit costs for all workers, which include some bonuses, severance pay, health insurance and paid vacations, accelerated last quarter following a 0.1 percent gain from July through September. The increase reflected a pickup in expenses at companies.

Compared with the same three months in 2010, the benefit costs were up 3.2 percent following a 3.2 percent increase a year earlier.

The Labor Department’s January payrolls report, due Feb. 3, may show private employers added 165,000 jobs, while overall employment climbed by 145,000, according to the Bloomberg survey median. The jobless rate probably held at 8.5 percent, the lowest level in almost three years.

Companies trying to restrain labor expenses include Citigroup Inc., the third-biggest U.S. lender by assets. The company said this month that it will eliminate about 1,200 workers. Citigroup also may cut 2011 bonuses in its investment banking division by about 30 percent on average amid slumping revenue, according to a person briefed on the matter.

--With assistance from Chris Middleton in Washington. Editor: Carlos Torres

To contact the reporters on this story: Shobhana Chandra in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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