Wages, Benefits Rise 5.5%, Biggest Increase in 6 Years

Wages, salaries and other benefits paid to American workers shot up 5.5% over the last year, the largest jump in six years, the government reported today.

The Labor Department attributed much of the increase in its employment cost index, one of the best measures of wage inflation, to the continued soaring cost of health insurance and other benefits, plus a rise in Social Security taxes.

Health insurance alone increased 12.1% for the year ending in March, following the 13.4% rise registered for the 12-month period ending in March, 1989.

The 5.5% rise in overall employment costs was the largest 12-month surge since March, 1984, when wages, benefits and salaries increased by 5.9%, the government said. A year ago, employment costs had gone up 4.8% for the same period.

Economists have been concerned that tight labor markets are pushing labor costs higher and worsening the nation’s inflation problems. Last month, the nation’s already relatively low unemployment rate fell a notch to 5.2%.

Allen Sinai, chief economist for the Boston Co., called the report a “big negative on the inflation outlook.”

“It shows that we have a rock-hard high employment cost lump facing American business that is being passed on at the retail level,” Sinai said.

Today’s report showed that wages and salaries rose 4.2% over the year ending in March, the same as the increase from a year earlier, while benefit costs jumped 7.2%, compared with a 5.4% rise a year before.

The jump in benefit costs was blamed on higher health insurance and an increase in Social Security taxes, up from 7.51% to 7.65%.

Private industry workers in the Northeast fared the best in terms of wage and salary gains. Workers in that region saw their wages and salaries increase by 5.4%, compared to a 3.5% rise for workers in the Midwest and a 3.4% gain for those in the West. Southern workers enjoyed gains of 4.3%.