July 2003

Compensation Costs in Private Industry
March 1987 to December 2002

  • Total compensation costs in December 2002 were $22.14 per hour worked, up from $13.42 in 1987. Since March 1987, total compensation costs have increased at an average annual rate of 3.4 percent, according to data released by the Bureau of Labor Statistics (BLS).

  • The costs of employee benefits increased at an average annual rate of 3.5 percent from March 1987 to December 2002. In March 1987, benefit costs per hour worked were $3.60, or 26.8 percent of total compensation. In December of 2002, benefit costs were $6.07 per hour worked, or 27.4 percent of total compensation.

  • From March 1987 to March 1994, employee benefits accounted for an increasing percentage of total compensation costs, from 26.8 percent in March 1987 to 28.9 percent in March 1994. Benefit costs declined as a percentage of total compensation after March 1994, and leveled off at 27 percent from March 1998 to March 2001. By December 2002, benefit costs had climbed to 27.4 percent of total compensation costs.

  • One of the major causes of the decline in benefit costs (from March 1994 through March 1998), as a percentage of total compensation costs, was the decline in health insurance costs. Insurance costs increased steadily from March 1987 ($0.72 per hour worked) to March 1994 ($1.23), but then declined to a low of $0.99 in March 1997. Since March 1997, however, health benefit costs have been increasing again. Health benefit costs were $1.16 per hour worked in March 2001 and rose to $1.35 per hour worked by December 2002.

  • Legally required benefits (Social Security, federal and state unemployment, and workers' compensation) have always been the highest-cost benefit for private-sector employers. Legally required benefits accounted for 8.4 percent of total compensation costs ($1.13 per hour worked) in March 1987, and increased to 9.4 percent ($1.60) by March 1994. Legally required benefits declined to 8.4 percent of total compensation costs by December 2002 ($1.85).

  • March 1996 was the first time the BLS reported separate cost data for Old-Age and Survivors and Disability Insurance (OASDI), commonly known as Social Security, and Medicare. At that time, OASDI costs to private-sector employers were $0.84 per hour worked, or 4.8 percent of total compensation; Medicare costs to employers were $0.21 per hour worked, or 1.2 percent of total compensation costs. By December 2002, the costs of Medicare, as a percentage of total compensation costs, had not changed significantly ($0.26 per hour worked, for Medicare), while the cost of OASDI had increased 0.1 percent ($1.08 for OASDI).

  • Key employer characteristics affecting total compensation costs are: size of the company, industry, occupation group, union status, and worker status (full-time vs. part-time).

  • Large establishments have higher total compensation costs than small establishments. Total compensation costs in establishments with fewer than 100 employees were $18.87 per hour worked in December 2002, compared with $30.29 per hour worked for establishments of 500 or more employees.

  • Goods-producing industries have higher total compensation costs ($25.88 per hour worked) than do service producing industries ($21.11).

  • White-collar occupations have the highest total compensation costs ($26.77 per hour worked), compared with blue-collar occupations ($20.68), and service occupations ($11.25).

  • Total compensation costs were higher for union workers ($30.29 per hour worked) than for nonunion workers ($21.16).

  • Total compensation costs were higher for full-time workers ($22.14 per hour worked) than for part-time workers ($12.30).

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For more information, contact Ken McDonnell at (202) 659-0670.

Source: Source: EBRI Databook on Employee Benefits, fourth edition (Washington, DC: Employee Benefit Research Institute, 1997) and U.S. Department of Labor, Bureau of Labor Statistics, Employer Costs for Employee Compensation, www.bls.gov/ncs/ect

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