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November 2023  Volume 21, Number 11        
 

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Employers Apply Brakes to Runaway Compensation Growth

Employers are still boosting compensation for workers, but the pace is slowing, according to new data from the U.S. Bureau of Labor Statistics (BLS). The latest BLS Employer Costs for Employee Compensation report shows total compensation costs for private-industry workers rose just 0.59% from March to June 2023. This indicates that as economic uncertainty continues, employers are tapping the brakes on runaway compensation growth.

The data provides a snapshot of how employer compensation strategies are shifting. With high inflation persisting and a potential recession looming, companies appear to be taking a more cautious approach to compensation budgets.

Compensation Growth Moderates in Recent Months

The BLS reported that total employer compensation costs for private-industry workers averaged $41.03 per hour worked in June, up slightly from $40.79 per hour worked in March.

Wages and salaries averaged $28.97 per hour worked in June, making up 70.6% of compensation costs. Benefits like health insurance and paid leave accounted for the remaining 29.4%, or $12.06 per hour worked.

The 0.59% increase in total compensation from March to June is notably less than the 1.1% growth seen in the previous quarter. It indicates the rapid compensation growth of 2021 and early 2022 is beginning to lose momentum.

Factors Driving the Slowdown

Several factors are likely contributing to the deceleration in compensation growth.

  • Inflation - While high at 8.3% annually, inflation has cooled since hitting 9.1% in June, reducing pressure on employers to hike wages to help workers keep pace.
  • Economic outlook - Recession fears persist, leading some employers to budget more conservatively for future compensation.
  • Labor market - With job openings declining but still robust, the labor market is less tight, giving employers more leeway to restrain compensation growth.

Benefits Costs Also Growing More Slowly

For benefits, BLS data shows costs grew just 0.33% over the quarter — down from a 0.51% increase in the prior quarter. This pullback indicates employers are also carefully managing benefits spending.

The cost of health insurance rose just 0.31% from March to June despite high medical care inflation. Paid leave and supplemental pay like overtime also increased by less than 1%.

Compensation Still Strong Historically

Despite the slowdown, compensation remains relatively strong a year into the post-pandemic recovery. The BLS reports wages and salaries were up 5.7% for private-industry workers from June 2021 to June 2022.

Many employers are still boosting pay and benefits to attract and retain talent in a competitive labor market. However, the latest data signals they are being more judicious than in 2021-2022 as economic growth downshifts.

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In this issue:

This Just In ... PPACA Penalties Pack a Punch: What Employers Need to Know

Seven Open Enrollment Tips for Communicating Benefits

Virtual Physical Therapy: An Employer’s Secret Weapon Against Opioids

How Smart Employers are Using Second Opinions to Avoid Unneeded Surgeries

Employers Apply Brakes to Runaway Compensation Growth

 

 


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