Employee compensation hits record slowdown

WASHINGTON – Wages and benefits rose by the smallest amount on record in the 12 months ending in September, as high unemployment limits the income growth of workers still receiving paychecks.

With employers cutting costs to maintain profits, they are sharply reducing the rate of growth in total compensation, economists said.

The average cost of wages, health care and other benefits increased 1.5 percent in the year ending in September, the smallest gain since records began in June 1982, the Labor Department said Friday.

Annual increases in the department’s Employment Cost Index have been more than cut in half since December 2007, when the recession began. That month, the index grew 3.3 percent over the previous year.

Wages and benefits rose a seasonally adjusted 0.4 percent in the July-September quarter, the same as the second quarter and matching analysts’ expectations. That narrowly beat the 0.3 percent rise in the first quarter, the smallest on record.

The index tracks the average cost to employers of each hour worked, so it doesn’t reflect layoffs and other changes in the size of a company’s work force.

Rising unemployment means employers can keep workers without having to offer higher salaries, while also making it difficult for people with jobs to demand higher compensation.

Wages and salaries, which make up about 70 percent of the index, also rose only 1.5 percent in the past year, down from a 3.4 percent pace in the year ending December 2007.

Benefits, meanwhile, increased 1.6 percent, down from 3.1 percent growth in the year ending in December 2007.

Benefits include vacations, holidays, overtime pay, some bonuses, and health and life insurance.

Jennifer Lee, an economist at BMO Capital Markets, wrote in a note to clients that benefits were rising at a 7 percent clip as recently as 2004, nearly five times the current level.

“This is the new norm,” she wrote.