Compensation for U.S. workers picked up again in the final quarter of 2023, but in one of the smallest increases in months—a sign that aggressive wage growth is cooling.
Workers were paid 0.9 percent more in the fourth quarter of 2023 than the third quarter, according to the Employment Cost Index (ECI), released Jan. 31 by the U.S. Bureau of Labor Statistics (BLS). That’s down from the 1.1 percent climb seen in the third quarter, and lower than the 1 percent that was forecasted. Wages and salaries increased 0.9 percent and benefit costs increased 0.7 percent from September 2023.
Year-over-year, compensation costs in the U.S. for private sector workers—including pay and benefits—rose 4.1 percent. Comparatively, the third quarter index, released in late October, found that compensation growth was 4.3 percent year-over-year.
Wages and salaries rose 4.3 percent for the 12-month period ending in December 2023, compared to 5.1 percent in December 2022, the ECI found. Meanwhile, the cost of benefits grew 3.6 percent for the 12-month period ending in December 2023, compared to 4.8 percent in December 2022.
The ECI, which measures changes in the cost of employees' wages and benefits to employers over time, is an important gauge for organizations, and HR professionals in particular, who may use the ECI to make decisions about pay adjustments to help them stay competitive.
The index is also considered an important gauge of inflation. Economists say higher wages can contribute to overall inflationary pressures, which the Federal Reserve is trying to bring down. The Fed watches the Employment Cost Index, as well as the BLS Consumer Price Index, closely as it determines interest rates.
The latest CPI, released earlier this month, found that the yearly rate of inflation rose to 3.4 percent in December, up from the 3.1 percent unadjusted rate reported in November.
Although industry experts have said that the aggressive salary hikes that organizations were turning to in response to sky-high inflation and a tight labor market may have peaked, analysis still points to healthy and competitive pay boosts in 2024. For instance, WTW, which surveyed more than 33,000 employers in December, found that U.S. employers are planning an overall average salary increase of 4 percent this year, down slightly from the actual average increase of 4.4 percent in 2023.
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