Employer Cost Index Rises 1.2%; Benefits in the Lead

The cost of wages, salaries and benefits to the nation’s employers rose 1.2% in the first quarter of 1989, with increases in benefits costs again outpacing pay gains, the Labor Department reported today.

The employment cost index report showed that for the 12 months ended March 31, the cost of wages, salaries and benefits rose 4.8%, down slightly from the 5% average for calendar 1988 but up significantly from 1987’s 3.6% increase.

The index measures changes in an employers’ costs for all forms of compensation, principally wages and salaries and such employer-paid benefits as health insurance. It is closely watched as a barometer of inflation, particularly in the last year, as analysts have speculated that the tight labor market would drive up compensation costs because of increased competition for workers.

Analysts disagreed over whether the figures signaled a faster pace of wage gains and therefore increased inflationary pressure on the economy.

“The numbers are reasonably favorable, and there are no signs of wage acceleration,” said Michael Evans, president of a Washington economic forecasting firm. “Except for the one sore spot of rising health care costs . . . I think the figures show wage gains continue to be stable and no signs of rapid acceleration.”

But economist Roger Brinner at Data Resources Inc. in Lexington, Mass., said the report indicated that labor costs are “creeping up.” He predicted that the annual rate of employer cost increases, which would be 4.5% if the first-quarter numbers held throughout the year, would climb to 5% and possibly to 5.5% over the next year.

“With unemployment down to almost 5%, workers feel that they can ask for their normal share, which is the sum of inflation and productivity,” Brinner said. Inflation on U.S.-produced goods is about 4.5% and productivity gains have been in the 1% to 1.5% range.