Compensation costs for U.S. workers rose at a slower pace in the year ending March 2025, signaling a potential cooling in labor market pressures that could influence employer budgeting and hiring plans.
The Employment Cost Index increased 3.6% for the 12-month period ending in March, down from 4.2% a year earlier, the U.S. Bureau of Labor Statistics reported Wednesday. The quarterly increase remained steady at 0.9%.
Wages and salaries, which make up the largest portion of employment costs, rose 3.5% over the year, a notable deceleration from the 4.4% increase recorded in March 2024.
Private sector shows greater moderation
Private industry employers saw compensation costs rise 3.4% over the year, down from 4.1% in the previous year, according to BLS data. Wages in the private sector also increased 3.4%, compared with 4.3% a year earlier.
When adjusted for inflation, real wages in the private sector increased 1.0% over the 12-month period, indicating modest gains in purchasing power for workers.
Union-nonunion gap widens
The BLS data revealed a significant disparity between union and non-union workers. Compensation for unionized employees increased 4.6% over the year, while non-union workers saw a more modest 3.3% rise.
This 1.3 percentage point gap highlights the difference in compensation growth between union and non-union workers during the past year.
Public sector compensation growth moderates
State and local government workers experienced a 4.3% increase in compensation costs, down from 4.8% in March 2024. Wages and salaries for government employees rose 4.1%, showing a larger slowdown from the 5.0% increase recorded a year earlier.
Benefit costs for public sector workers, however, continued to rise at a faster pace, increasing 4.8% compared to 4.5% in the previous period.
Health benefit costs accelerate
In a concerning trend for employers managing benefit packages, health benefit costs in the private sector jumped 5.4% over the 12-month period, a sharp increase from the 2.8% rise reported a year earlier by the BLS.
This acceleration in health benefit expenses comes at a time when many employers are evaluating their total compensation packages amid changing workforce expectations.
The Bureau of Labor Statistics will implement changes to how it reports index levels starting with the next quarterly report in July, publishing index levels to three decimal places to provide more precise measurements.
