What is an ECI or an Employment Cost Index?

The Employment Cost Index (ECI) is used to measure the changes in the expenses with regard to the labor in the economy. It is done quarterly by certain agencies in the government. It aids in the measure of inflation with regards to the wages, salaries, and benefits that the employers pay to their employees.

Although the ECI talks about cost index, it is closely monitored by the finance sector, it still get less attention from the media and the press, than the Consumer Price Index (CPI). It even gives sign whether the employment cost is rising or falling.

ECI then makes sure that there is the accurate data regarding the employers’ compensation cost that depends for the making of policies and the success of the business planning. When ECI is on its decision making process, it also affects the main interest rate.

The result of the ECI is based on the surveys conducted related to the employers’ payroll every month of the quarter. It even traces the movement of the labor cost, the wages, benefits and bonuses for the employees of all company levels.

Why analyze the ECI? It is because wage pressure increases together with inflation for the reason that compensation tends to increase even before the companies increase the price for the consumers. It simply implies that an increase in the wage of the employees also increases the price of the goods or services, since labor that comes from the employees is a component in order to make the commodity and services.

There is no wonder, why there are companies that cannot easily increase the compensations, salary or wages of the employees. It’s because it will directly affect the price of the goods and services they offer.

It is said that ECI is the best way to measure the compensation growth of wages and benefits. It mainly lies on the capacity of the ECI to show whether the wage or benefit cost excess or grows faster than inflation.

On the other hand, ECI is a less timely indicator of employment cost than those with the hourly information found in the monthly reports of employment. This hourly reports are made available on the first week of the next month while ECI data will be available a month after the quarter ends.

Yet, the ECI has two advantages over the hourly earnings series. Benefits included are, the non-wage element of employment costs. Benefits covered by the ECI include paid leave, insurance benefits, and retirement and saving benefits. Another one, it is free from employment shifts among occupations and industries since like the consumer price index (CPI), the ECI relies on a fixed service like occupations.

Since the ECI includes overtime payments as a fixed increment to wages, short-term increases in overtime will not change the index.