Vacation Perks and Retirement Benefits Are Propelling Worker Pay Packages

Employers are spending more on vacation perks and retirement contributions, helping to propel overall compensation package growth to its fastest pace in two years. Private-sector workers’ average hourly compensation, including both pay and benefits, advanced 4% from a year earlier in the third quarter, according to new Labor Department data. It’s the best gain in total compensation since the same quarter in 2015. Benefits, not wages, are leading the improvement. Benefits increased 4.6% from a year earlier, the best gain in more than two years. Back in 2014 and 2015, health-insurance benefits rose alongside the implementation of the Affordable Care Act. The increase over the past year is being driven by more paid leave and retirement benefits. Retirement benefits, measured at an hourly rate, rose 11.2% from a year earlier. Paid leave improved by 5%. Insurance costs, which includes health insurance premium paid by employers, rose 3.5% a year earlier. The data suggests that as the labor market tightens–the unemployment rate is trending at a 17-year low–employers might be stepping up fringe benefits as part of a compensation package. That could help explain why wages are advancing at a relatively subdued rate.  Employers and workers could favor improving benefits and flexibility to take time off over bigger paychecks. From a decade earlier, when the recession began, benefits have increased more than 30%, while wages and salaries are up about 25%. The Labor Department report did show wages and salaries for private-sector workers advanced 3.7% from a year earlier, which was also the best gain in two years. The data from the Employer Costs for Employee Compensation report is one of several recent measures showing somewhat firmer wage growth than the 2.5% annual improvement in average hourly earnings found in the closely watched jobs report. For example, weekly pay, which accounts for working more hours is rising at a better rate than hourly earnings. Due to its methodology, the Labor Department cautions against reading too much into trends over time found in the Employer Costs for Employee Compensation report. But still it’s of interest to economists because it provides additional details on what’s driving compensation changes. RELATED U.S. Hiring Figures Reveal Sweet Spot for Economy (Dec. 8) Real Wages Keep Powering Ahead, but Can the Trend Last? (Sept. 24) Low-Income Earners See Weekly Pay Gain Faster Than Other Groups (July 20)  

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