Employment Costs Outpace Inflation Rate During ’88

Employment costs rose faster than inflation last year, largely because of higher Social Security taxes and soaring benefit costs, while wage gains lagged behind inflation, the government reported Tuesday.

The 5% rise in the cost of wages, salaries and employer-paid benefits in 1988 compared to a 3.6% increase in 1987, the Labor Department said. Inflation averaged 4.4% both years.

Employment costs rose by 5.6% among state and local governments in 1988, up from 4.4% in 1987, the department said in releasing its quarterly employment cost index.

It cost private industry employers 4.9% more last year to pay wages, salaries and benefits than it did in 1987, the department said, compared to a 3.3% increase in 1987 over 1986. Federal government employment costs are not included in the report.

Wage and salary gains are closely watched as signals of a possible inflationary spiral. Although the rate of those increases lagged behind inflation for the second consecutive year, the increase was 4.1% in 1988, much closer to inflation than the 3.3% hike reported for 1987.

Analysts offered a simple explanation for that: Continued low unemployment has forced employers to compete for available workers, often by increasing pay.

Social Security Cited

“It’s clearly the decline in the unemployment rate,” said Cynthia Latta, chief financial economist at Data Resources Inc., a Lexington, Mass., forecasting firm. “There is less available labor out there in the market, and it’s harder to find what you want.”

Part of the overall increase in employment costs was attributed to the increase in the employer’s Social Security tax rate in January, 1988, to 7.51% from 7.15%.

Rising health insurance costs were cited as a major factor in the 6.8% increase in benefit costs to private employers in 1988. That increase was nearly double the 3.5% jump in benefit costs reported in 1987 and came after three years of virtually identical growth in those costs.

Sales workers, whose pay is heavily influenced by commissions, experienced a 6.6% wage gain in 1988, up from just a 1% gain in 1987.

Workers in the rapidly expanding service sector of the economy experienced wage and salary gains of 4.7%, while those working in goods-producing industries saw their pay increase on average by 3.1%.

For the fifth consecutive year, non-union workers in private industry received greater wage and salary increases than did their unionized counterparts, with the increases averaging 4.5% and 2.2%, respectively.