US Labor Costs Rose in 2021 at Fastest Pace In 20 Years, Adding to Signs of Sticky Inflation

The cost of hiring new employees and retaining existing ones rose in 2021 at its fastest pace in 20 years, according to new Labor Department figures, which provide a fresh data point on the inflationary pressures that have gripped the U.S. economy and sent the Fed scrambling to dial back its loose monetary settings.

The Labor Department said on Jan. 28 (pdf) that the U.S. Employment Cost Index (ECI) for civilian workers, which is the broadest measure of labor costs, jumped by 4 percent in 2021 compared to the year prior. That’s the highest reading in the annual measure since 2001. By comparison, the full-year ECI for civilian workers rose 2.5 percent in 2020.

The ECI, which measures changes in the cost of compensation not just for wages and salaries but also for a range of benefits, is scrutinized by many economists as an indicator of cost pressures in companies that could lead to price inflation of finished goods and services.