US employment costs rose 0.8% in the third quarter of 2026, in line with expectations, after 0.9%. Wages and salaries were up 3.1% from a year earlier, below 3.7% CPI inflation, so real wages fell 0.6%.
Global Economy Charts Research Desk | November 2, 2026
Key indicators
| Indicator | Reading | Context |
|---|---|---|
| Compensation costs | +0.8% q/q | Q2 2026: +0.9%; consensus: +0.8% |
| Compensation costs | +3.4% y/y | June 2026: 3.4%; Sept 2025: 3.5% |
| Wages and salaries | +3.1% y/y | June 2026: 3.2% |
| Benefits | +3.9% y/y | Private health benefits: +6.4% |
| Real wages (private) | -0.6% y/y | June 2026: -0.3% |
The Employment Cost Index tracks the cost of employing a fixed mix of workers, so it is not distorted by shifts between high- and low-paid jobs in the way average hourly earnings can be. That is why the Federal Reserve watches it closely as a gauge of underlying wage pressure.
1. A steady quarterly pace
The 0.8% rise matched the consensus and sits in the narrow 0.7–0.9% range the index has occupied for the past nine quarters. Wages and salaries grew 0.7% on the quarter, slowing from 0.9%, while benefits rose 0.9%. On this evidence, labour costs are neither accelerating nor cooling quickly; the change is gradual.
2. Benefits are now the faster component
Benefit costs rose 3.9% over the year, outpacing wages at 3.1%. Health insurance is the main driver: private-sector health benefit costs rose 6.4%, up from 6.0% in June. Rising benefit costs add to employers’ expenses without raising take-home pay, which helps explain why workers may not feel the full increase in compensation that firms are paying.
3. Union pay is running ahead
In private industry, union compensation rose 4.3% over the year against 3.3% for non-union workers. Union contracts often lock in multi-year increases negotiated when inflation was rising, so they adjust with a lag. State and local government compensation rose 3.5%, slightly faster than the private sector, although its quarterly growth slowed to 0.6% from 1.0%.
4. Inflation is outrunning pay
With consumer prices up 3.7% in the year to September, BLS’s inflation-adjusted series show private-sector real wages falling 0.6%, a steeper decline than the 0.3% recorded in June. Civilian real compensation fell 0.4%. For the Federal Reserve, this is a mixed signal: wage growth is not the source of current inflation, but falling real incomes could weigh on consumer spending, as the September income data already suggest.
Scenarios to watch
If inflation eases while nominal wages hold near 3%, real pay could return to growth in 2027. If price pressures persist, workers may push harder for raises, lifting labour costs. BLS will update the index’s employment weights with the December release on 29 January 2027, which may affect comparisons. These scenarios are not forecasts.
Sources and methodology
BLS, Employment Cost Index, September 2026, 30 October 2026; BLS, ECI Table 1; BLS, Consumer Price Index, September 2026; Reuters, 30 October 2026. Reported figures are distinguished from forecasts and GEC calculations. Charts use the values and units shown; scales start at zero except where negative values or index thresholds require otherwise. Interpretive sections are GEC analysis, not company or central-bank forecasts.
Thumbnail: AI-generated editorial illustration. Figures are rounded for readability; some releases may be preliminary or subject to revision.
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