Workers' Wages and Benefits Up 1.3 Percent in First Quarter

WASHINGTON – U.S. workers' wages and benefits rose by a brisk 1.3 percent in the first three months of 2003, the biggest increase in nearly 13 years, even as businesses struggled with the lackluster economy (search).

The increase in the employment cost index (search) for the January to March quarter was nearly twice as big as the 0.7 rise posted in the fourth quarter of 2002, the Labor Department (search) reported Tuesday.

Although companies have been keeping work forces lean to deal with the uneven economy, they are providing workers who are still on the payrolls more generous compensation packages. That's goods news for the ranks of the employed but can be a potential strain on some profit-pressed companies.

Tuesday's report showed employment costs growing more quickly than the 0.8 percent advance that economists expected.

The 1.3 percent rise registered in the first quarter was the largest increase since the second quarter of 1990, when compensation went up by the same amount.

The costs of benefits, such as health insurance and vacations, continued to outpace wage gains.

Benefit costs rose by a sizable 2.2 percent in the first quarter of 2003, following a 1.3 percent advance in the prior quarter. The increase in benefit costs in the first quarter was the largest in 15 years.

Wages and salaries rose by a solid 1 percent in the first quarter, twice as fast as the 0.5 percent increase recorded in the fourth quarter. It marked the largest gain in wages and salaries since the first quarter of 2001, when they rose by the same amount.

That's encouraging because income growth is the fuel for future spending by consumers, the main force that has been keeping the economy going.

Consumers have been keeping their pocketbooks and wallet sufficiently open to support economic growth, but businesses have been cautious amid the muddled economic climate.

Coping with lackluster profits and uneven demand from customers, businesses have been reluctant to increase capital spending and go on a hiring spree, major factors restraining economic growth.

Economists believe the nation's unemployment rate will nudge up to 5.9 percent in April, from 5.8 percent in March. The government releases the employment report for April on Friday.

Even if the economy starts improving a bit later this year, the jobless rate probably will creep up because job growth won't be strong enough to accommodate the expectation that an improved climate will attract a lot more job seekers, economists say.

Federal Reserve Chairman Alan Greenspan, who is scheduled to appear on Capitol Hill Wednesday, has expressed optimism that the economy will get back on surer footing once all the uncertainties associated with the war are lifted.

The Fed held a key interest rate at a 41-year low of 1.25 percent in March. Economists believe this rate will stay at its current super-low level for a while to help the economy recover. President Bush wants Congress to pass a new round of tax cuts to help the economy.