Wage Inflation Heading Up

Wage inflation ticked up in the first quarter, by the more reliable measure, the Employment Cost Index:


As a reminder, the ECI adjusts for the mix of jobs, so it’s an apples-apples comparison of what particular jobs paid this quarter compared to last quarter.  In contrast, the Average Hourly Earnings (AHE) simply averages the earnings of all jobs.  When more high-wage jobs are created, the AHE rises faster than the ECI.  That’s what was happening in 2006, but has stopped.  Now the mix is changing toward lower-paying jobs.  The good news for workers, though, is that for any given job, wages are rising nicely.

The message for employers is that labor markets have tightened up.  Wages are rising.  The best alternative to paying higher wages is employee practices that help retain the best workers.