Employment Cost Index (ECI) is a report issued by the U.S. Department of Labor on quarterly basis. It is prepared by the Bureau of Labor Statistics (BLS). This report calculates the expansion of employees' compensation including the benefits and the wages. The index is usually based on the survey of employer payrolls. It is conducted in the last month of each quarter. The ECI keeps track of progress in the labor cost. This also includes bonuses, wages and fringe benefits for workforce at all levels of a company or a corporation.
The basic theme of examining this index is that inflation increases with increase in wage pressures because compensation has a tendency to boost before companies raise prices for customers. Hence, it is believed to be inflationary when this index shows signs of a jump that is higher than projected for a given period and also has a further upward tendency. Moreover, the yields and interest rates also climb up as inflation increases. This upward trend results in a reduction in bond prices.
Employment Cost Index is considered to be one of the advanced and the sophisticated measure of original tendencies in worker compensation as a cost of production. Despite of the fact that ECI receives much less attention by the press than the most commonly quoted Consumer Price Index (CPI), still it remains an extensively followed index.
Being the measure of inflation in consumer prices, the ECI usually provides a clear indication of rising or declining employment cost changes. In this way it helps in predicting the inflation of salaries as well as the employer-paid benefits. Most of the experts believe that the Employment Cost Index is indispensable and very important for understanding the US economy. They think that it guarantees the precision of the statistics on employers compensation costs which is essentially required for monetary policy making and for profitable business scheduling.
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