US employment costs rise modestly in fourth quarter

FILE - In this July 12, 2020, file photo, a waiter wears a protective face mask and gloves while working at the il bolognese restaurant along Ocean Drive during the coronavirus pandemic, in Miami Beach, Fla. Wages and benefits for U.S. workers rose at the slowest pace in three years in the April-June quarter, a sign that businesses are holding back on pay as well as cutting jobs in the coronavirus recession. (AP Photo/Lynne Sladky, File) (Lynne Sladky, Copyright 2020 The Associated Press. All rights reserved.)

SILVER SPRING, Md. – Wages and benefits for U.S. workers rose in the last quarter of the year, putting all of 2020 in somewhat of a normal range as the pandemic continued to rankle the economy.

Total U.S. workers compensation rose 0.7% in the October-December quarter, an increase over the previous two quarters, the Labor Department said Friday. Growth was 0.5% in the second and third quarters, down from 0.8% in the first three months of the year.

For the year, wages and benefits grew 2.5%, with wages and salaries up 2.6% and benefits, which include Social Security, grew 2.3%.

Wages and salaries grew 0.9% in the final quarter of 2020 while benefits rose 0.6%.

Compensation costs for private industry workers rose 0.5% in the quarter and 2.6% in 2020.

The data comes from the Labor Department’s Employment Cost Index, which measures pay changes for workers that keep their jobs. The data isn’t affected by the mass layoffs in the spring.

While employers are limiting increases in compensation, most are reluctant to cut pay outright. Companies generally avoid slashing pay because it can demoralize workers and send them looking for new jobs. The pay raises don't necessarily mean employers boosted pay during the pandemic, but more likely that many of the increases were already baked into existing contracts.

“Overall, compensation costs are likely to remain subdued going forward, reflective of a high level of unemployment that will restrain wages,” said Rubeela Farooqi, economist with High Frequency Trading.

Economists say moderate gains in wages and salaries, which make up 70% of employment costs, are generally not threatening to trigger inflationary pressure.

The job market has stumbled this winter as colder weather and the raging pandemic have discouraged Americans from dining out, traveling, or going out to bars or movie theaters. Employers shed jobs in December for the first time in six months, and the unemployment rate was stuck at 6.7% for the second consecutive month. The economy still has 9.8 million fewer jobs than before the pandemic, more than were lost in the 2008-2009 recession.

Even though the wage gains were modest last year, they still outpaced 2020 inflation of 1.4%, which is well below the Federal Reserve’s 2% target. Analysts believe inflation will remain subdued as the U.S. economy struggles to break out of a pandemic-induced downturn.