What is the employment cost index and what does it tell us about the economy?

The Labor Department released its latest employment cost index, a quarterly report on how much employers are paying their employees, on Thursday. It showed that employment costs were up 0.8% in Q3.

Other recent data out this week found that wage growth has been slowing down in the most recent quarter, but people’s incomes are still growing at a decent pace.

The Labor Department’s employment cost index is basically a tally of what it costs to keep an employee on board.

“And it includes a lot of things,” said Preston Mui, senior economist with the research group Employ America. “It includes wages and salaries, of course — but it also includes a myriad of benefits, such as health insurance benefits, paid time off, retirement benefits, and so on and so forth.”

There is evidence that wages are continuing to increase, he added.

“Average hourly earnings are growing at a clip that’s faster than the CPI, for example. So wage growth has been outpacing inflation for quite a few months now,” Mui said.

That’s a good sign for workers and the overall economy, according to Peter Orazem, an economics professor at Iowa State University.

That’s because there’s another factor supporting the labor market, he said: “We’ve had unusually strong productivity growth over the last year and half now.”

Orazem said strong productivity pairs nicely with wage gains. Because when productivity increases, “you’re producing more stuff with the same inputs, so you’re just being that much more efficient. And if you’re more efficient, you don’t have to charge as much.”

In other words, as long as productivity stays high, Orazem noted that wages can keep rising without having a big effect on prices.