The BLS Employment Cost Index: What It Measures

Average hourly earnings — reported monthly in the jobs report — measure wages and salaries but exclude benefits. Total employer labor costs include employer contributions to health insurance, retirement plans, paid leave, workers' compensation, and payroll taxes. The Employment Cost Index (ECI) captures all of this.

ECI vs. Average Hourly Earnings

The ECI is a fixed-weight index that controls for composition changes — it measures the cost of the same mix of jobs over time. Average hourly earnings can rise simply because the workforce shifts toward higher-wage occupations, even if no individual worker received a raise. The ECI removes this composition effect, making it a cleaner measure of wage inflation.

The Federal Reserve uses the ECI as a key gauge of wage-driven inflation risk. When the ECI accelerates faster than productivity growth, unit labor costs rise and employers face pressure to raise prices.