How Government Employment Costs Are Growing

The latest federal data illustrates how benefits are becoming more costly for states and localities.
by | July 31, 2015

Employee benefit costs have garnered much attention from governments looking to rein in spending. Updated Labor Department data published Friday shows just how much they’ve increased nationally in recent years.

The latest employment cost index estimates for state and local government workers indicate benefit costs increased 0.8 percent in the second quarter of this year. Over the 12-month period ending in June, benefit expenses have climbed 2.7 percent -- nearly double the rate of the private sector.

The employment cost index, which is not adjusted for inflation, serves as an indicator to track changes in costs for different industries over time. Comparing quarterly changes for state and local governments illustrates that growth in employee benefit costs continues to consistently outpace wage increases:

Salaries vs Benefits

The gap between benefit costs for states and localities, which includes schools, and that of the private sector also continues to widen:

Private Sector vs State/Local Gov.

The big news from the report was the extremely lackluster growth in overall compensation -- wages and benefits -- for all sectors of the economy last quarter. Seasonally-adjusted total compensation rose just 0.2 percent over the three-month period ending in June, the lowest recorded tally since the Labor Department began tracking the measure in 1982.

As the economy adds jobs, economists expect the slack in the labor market to lead employers to pay more to attract and retain their employees. The updated data suggests that hasn't yet happened, despite the falling unemployment rate.

Total private sector compensation costs remained flat after increasing 0.7 percent during the first quarter. For state and local governments, overall compensation increased by a healthier 0.6 percent.

Looking back further at wage data, though, tells a much different story. Wage costs initially slowed more in the private sector around the start of the recession, but they’ve since surpassed public sector wage growth as governments dealt with budget cuts:

Private vs State/Local Gov.