US labour costs rise

Chart of the week

The employment cost index rose by a non-annualised 1.3% in the third quarter. The increase is the largest since 2001 and takes the year-on-year figure to 3.7%.

While this indicator is only published quarterly, it has several advantages over the hourly earnings data published in the monthly employment report.

Firstly, the quarterly report provides a more comprehensive measure of labour costs by including social benefits such as medical cover.

Above all, this indicator is designed to avoid certain statistical biases, unlike the hourly earnings index that can rise and fall in line with changes in the number of low-paid jobs and job seekers. This was an issue during the pandemic and complicated the task of understanding changes in average hourly earnings. The employment cost index provides a more reliable picture of wage trends.


The employment cost index shows wage pressure building amid growing labour market tensions as worker shortages appear to remain unresolved.

The most common explanation for this situation has been the very generous pandemic-related unemployment benefit schemes. Although these benefits were stopped in early September at the federal level, an increase in the labour supply has yet to materialise, as shown by the fall in September’s labour force participation rate. Indeed, it may be several months before the impact can be measured.

Meanwhile, businesses are facing higher labour costs that, if they are passed through to selling prices, could accelerate inflation further.


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The following opinion was written on November 05, 2021 and is susceptible of changing.

Sources : Bloomberg, and calculation from Lazard Frères Gestion

As of : November 05, 2021

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