The headline article on Bloomberg.com today has what must be (for Wall Street) a disturbing headline:
Productivity in U.S. Cools as Labor Costs Jump
The productivity of U.S. workers rose at a slower pace in the fourth quarter and labor costs jumped, indicating businesses are reaching the limit of wringing efficiency from their workforce…
Labor expenses last year increased 2 percent, revised from a 1.2 percent gain and the most since 2008…
Unit labor costs, which are adjusted for efficiency gains, were forecast to rise 1.2 percent in the fourth quarter, the survey median showed.
The revised jump in labor expenses last quarter reflected the biggest six-month increase in worker pay in almost five years. Wages and salaries in the third and fourth quarters of 2011 grew a combined $197.3 billion, the most since the six months ended March 2007, Commerce Department data revisions showed on Feb. 29. Gross domestic product climbed at a revised 3 percent annual rate, faster than previously estimated and the most since the second quarter of 2010.
That sounded quite odd considering how badly so many people have it – basic supply and demand would argue that wages should remain suppressed with so much surplus labor around. I took a quick look at the BLS data they’re citing, and found this explanation of the “wages and salaries” cited in the Bloomberg article in the technical notes:
Labor Compensation: The measure includes accrued wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Estimates of labor compensation by major sector, required for measures of hourly compensation and unit labor costs, are based primarily on employee compensation data from the NIPA, prepared by the BEA. The compensation of employees in general government, nonprofit institutions and private households are subtracted from compensation of domestic employees to derive employee compensation for the business sector. The labor compensation of proprietors cannot be explicitly identified and must be estimated. This is done by assuming that proprietors have the same hourly compensation as employees in the same sector. The quarterly labor productivity and cost measures do not contain estimates of compensation for unpaid family workers.
I don’t have time to dig further into the composition of the 2% increase, but given my own experience with fee hikes in health insurance plans, it seems reasonable to think that a good portion of it was due to insurance premiums. Which is to say, “labor costs” that don’t really go to labor, but rather to insurance company profit margins.