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Workers post big pay gains
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July 30, 1998: 9:25 a.m. ET
Employment-cost index rose 0.9% in 2Q, fueled by tight labor market
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NEW YORK (CNNfn) - American workers' compensation grew swiftly in the second quarter, buttressed by a tighter labor market that made workers more valuable to employers, the Labor Department reported Thursday.
The employment-cost index, a key measure of wage and price increases that is favored by Federal Reserve chief Alan Greenspan as a policy-making gauge, rose a seasonally adjusted 0.9 percent in the second quarter following a 0.7 percent increase in the first quarter. The hike topped economists' expectations for a 0.8 percent rise.
In a separate report, the Labor Department said first-time jobless claims fell to 304,000 in the week ended July 25 from 317,000 the prior week. The dip, to the lowest level since the 288,000 claims filed in the week ended April 11, suggested a favorable bias towards workers in a tighter labor market.
Over the past 12 months, worker pay and benefits climbed 3.5 percent, the steepest rise since the indicator rose by the same amount in the fourth quarter of 1993.
The Federal Reserve closely watches the employment-cost index for warning signs that the economy may be overheating, in which case it may move to hike interest rates.
In two days of semi-annual testimony before Congress last week, Greenspan voiced concerns that rapidly rising wages, more than an Asian-spurred recession, are a source of potential inflationary pressures.
But analysts said Thursday the rise in workers' pay, coming against the backdrop of a cooling economy, is not likely to give Greenspan an immediate pretext for boosting rates.
"I don't think this is something that is a problem for the markets and the Federal Reserve in the short term," said William Brown, an economist with J.P. Morgan. "But looking out into 1999, it certainly is a factor and a risk, a background risk of inflation." Therefore, Brown added, "the risks of [interest rate] tightening don't rise until you get out into the first half of 1999."
Compensation costs for private industry workers rose 0.9 percent in the second quarter compared with a 0.7 percent gain in the January-March period. Wages and salaries climbed 1 percent in the second quarter, up from a 0.8 percent increase in the previous quarter.
In private industry, compensation rose 4 percent for the year ended June 1998. 
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