Employment Cost Index (ECI)
The Employment Cost Index (ECI) is a broad measure of the changing cost of labor, including both wages and benefits (such as health insurance, paid leave, and retirement plans). It is broader than Average Hourly Earnings (AHE) because it…
At A Glance#
| Field | Detail |
|---|---|
| Provider | U.S. Bureau of Labor Statistics (BLS) |
| Survey / Tool | National Compensation Survey (NCS) |
| Frequency | Quarterly |
| Indicator Type | Lagging |
| Main Use | Measures employer labor-cost growth (wages + benefits); the Federal Reserve's preferred wage-inflation gauge |
| Live Series | Trading Economics — Employment Cost Index |
What It Is#
The Employment Cost Index (ECI) is a broad measure of the changing cost of labor, including both wages and benefits (such as health insurance, paid leave, and retirement plans). It is broader than Average Hourly Earnings (AHE) because it captures the full compensation package, not just take-home hourly pay. The Federal Reserve watches this closely for inflation risks.
Who Provides It#
BLS provides ECI using the National Compensation Survey (NCS).
How It Is Collected#
- The NCS uses U.S. Bureau of Labor Statistics (BLS) field economists to collect compensation data from survey respondents.
- They collect data through interviews and employer documents, such as job descriptions, wage records, benefit plan documents, and work schedules.
- The reference periods are the pay periods including the 12th day of March, June, September, and December, so ECI is quarterly.
- Total compensation, wages and salaries, and benefits are being calculated.
How It Is Computed#
ECI is a modified Laspeyres fixed-weight index. This means it measures labour-cost changes while holding the industry and occupation mix relatively constant — looking at the same "basket" of jobs over time so that the index reflects pay changes rather than workforce composition changes.
BLS forms basic cells by ownership sector, industry, and occupation, then calculates weighted average wage or benefit changes within those cells.
The "ECI Basket" — Why It Is Cleaner Than AHE#
Average Hourly Earnings (AHE) uses a simple average that gets skewed whenever a lot of high-paid or low-paid workers are hired or fired at the same time. For example, if highly paid tech workers get laid off while low-paid retail workers get hired, AHE might look like wages are dropping — even though pay rates for individual roles haven't changed.
To find the true rate of wage inflation, BLS created ECI. Instead of taking a raw average every quarter, ECI locks in a fixed "basket" of jobs and asks: we are tracking the exact same mix of 100 accountants, 50 janitors, and 200 nurses every quarter — we don't care who got fired or hired; we only care if the baseline pay for those specific roles went up or down.
By keeping the job mix constant, ECI filters out the noise of layoffs and hiring sprees and gives the Federal Reserve — and financial modellers — the cleanest look at whether underlying labour costs are inflating.
Indicator Type#
Lagging. Like average hourly earnings, employment costs and negotiated benefits usually rise after inflation and economic growth have already taken root. ECI is quarterly and reflects compensation that has already been paid or accrued.
Why It Matters#
The Federal Reserve watches ECI closely because it is the cleanest available measure of wage and benefit inflation. Persistent ECI growth signals that labor costs are adding sustained pressure to consumer prices, making inflation harder to bring down with interest rate policy alone.
Related Notes#
- Average Hourly Earnings (AHE) — monthly wage-growth measure from the same employer (CES); narrower and noisier than ECI
- Nonfarm Payrolls (NFP) — shows headcount changes; ECI shows compensation cost pressure
- Core Personal Consumption Expenditures Price Index (Core PCE) — the inflation gauge ECI ultimately feeds into through wage-price transmission