Sample 1 - State of California
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Employment Cost Index


We often hear people complain that everything is so much more expensive today than in the past-gasoline, home prices, food-and that our earnings have not kept pace.  We also know that for employers, the cost of labor is almost always their highest expense.  Have labor costs also skyrocketed over the years?  How can we really tell whether things really cost more today, be it gasoline, houses, food, or labor?

Many people are familiar with the Consumer Price Index (CPI), which measures changes in the price of goods and services, including such items as food, housing, clothing, transportation, medical care, and recreation.  However, most people are not familiar with the Employment Cost Index (ECI), which measures changes in the total compensation paid for labor.  The federal Bureau of Labor Statistics (BLS), which releases a monthly CPI report(www.bls.gov/cpi/home.htm), also publishes ECI figures every three months.  The BLS reports three different measures in the ECI-wages and salaries, benefits, and total compensation (which is a combination of the first two).  Because the ECI specifically measures changes in wages, the BLS strongly recommends using the ECI when converting current wages to constant (or inflation-adjusted) wages.  (For more information on the ECI, see the BLS Handbook of Methods at:  www.bls.gov/opub/hom/pdf/homch8.pdf)

Beginning with the March 2006 report, the BLS introduced a number of changes to the ECI.  The two most significant changes are:

  • Figures are now based on new industry and occupational classification systems:  the ECI captures labor cost changes for both industries and selected occupations based on a more up-to-date view of the global economy in which new industries and occupations are emerging constantly.  The updated classification systems are the 2002 North American Industry Classification System (NAICS), which replaced the 1987 Standard Industrial Classification (SIC) system, and the 2000 Standard Occupation Classification system, which replaced the 1990 Occupational Employment Statistics Classification System.


  • The new base is December 2005.  The previous base period for the ECI was June 1989, over 16 years ago.  A base period provides a common point of reference and rebasing normally occurs when the index values become too large or when there are significant changes in the index series.  The BLS still publishes ECI industry tables for both the NAICS and SIC systems.  The nonseasonally adjusted ECI for the NAICS starts from the first quarter of 2001, whereas SIC figures are available from 1989.
Learn how to calculate the ECI, including how to convert current and historical wages into constant (or inflation-adjusted) wages.



 
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