Compensation growth slowed slightly in the third quarter of the year, signaling that the white-hot labor market is cooling off.
The latest data from the Bureau of Labor Statistics‘ Employment Cost Index (ECI) shows that compensation costs, including wages and benefits, rose 0.8% from June to September. While still an increase, it marks a deceleration from the 0.9% growth in the second quarter. On an annual basis, compensation was up 3.6% in September—down from 3.9% in June and 4.3% a year ago.
Experts note that the tapering aligns with broader inflation trends, which have also been on a downward trajectory after hitting 40-year highs earlier in 2024. The data reinforces other indicators of a gradual cool-down, with moderating salary growth across all civilian workers and benefit cost increases slowing among private employers.
The Numbers Behind the Slowdown
Wages and salaries increased 0.8% quarter- over-quarter, while benefit costs were up 0.8% in Q3—both a notch below last quarter’s 0.9% rise. Over the last 12 months, wage growth for state and local government employees has fallen from 4.9% to 4.7%.
Meanwhile, benefits cost increases slowed dramatically, from 3.9% year-over-year in Q3 2023 to just 3.3% in Q3 2024. Experts say budgeted 2025 salary increases may follow suit, projecting minimal upticks from this year’s actual raises.
The Federal Reserve watches indicators like ECI closely when deciding interest rates. For employers planning 2025 compensation, the data signals that the rapid pace of pay hikes over the past few years may be ending. Moderation could allow benefits budgets some relief as well after sharp cost jumps.
For more Employee Benefits resouces, contact INSURICA today.
Copyright © 2025 Smarts Publishing. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
About the Author
Share This Story
Related Blogs
Fiduciary Responsibilities for Employer Health Plans: What Employers Should Know Now
When employers think about fiduciary responsibility, retirement plans often come to mind first. But recent developments make it clear that fiduciary duties also matter—sometimes significantly—when it comes to employer-sponsored health and welfare plans.
The New Era of Mental Health Parity Enforcement in 2026
Federal agencies have made mental health parity enforcement a top priority in 2026, and employers sponsoring group health plans are feeling the impact. Regulators are no longer satisfied with high‑level assurances that plans comply with the Mental Health Parity and Addiction Equity Act (MHPAEA). Instead, they expect detailed, data‑driven documentation showing that mental health and substance‑use‑disorder benefits are truly comparable to medical and surgical benefits. This includes not only the written plan design but also how rules are applied in real‑world scenarios.
The 2026 Specialty Drug Surge: What Employers Need to Prepare For
Specialty drugs have been a major cost driver for years, but 2026 marks a significant shift in both scale and urgency. With GLP 1 medications expanding into new indications, gene therapies entering the market at record pace, and oncology drugs continuing to rise in both cost and utilization, specialty medications are projected to account for more than 60% of total pharmacy spending this year. That’s a dramatic change for employers, especially considering that specialty drugs represent fewer than 5% of total prescriptions.