WASHINGTON - Wages and benefits paid to civilian workers rose last year by the smallest amount in nine years, the government reported Tuesday.
The Labor Department said that employee compensation was up 3.1 percent in 2005, an increase that was slower than the 3.7 percent rise in 2004. The slowdown reflected a big drop in benefit costs - items such as health insurance and pensions - which rose by 4.5 percent last year after jumping by 6.9 percent in 2004.
The new Employment Compensation Index should ease concerns at the Federal Reserve that improving labor markets could be starting to push up wage pressures. Wages and salaries rose by 2.6 percent last year, only slightly higher than a 2.4 percent increase in 2004.
The 3.1 percent increase in total compensation for the 12 months ending in December was the smallest annual increase since a 2.9 percent rise in 1996.
Last year's increase was not enough to keep up with inflation. When inflation is considered, overall compensation fell by 0.3 percent, the first time there has been a decline since 1996, when total compensation after adjusting for inflation was down by 0.4 percent.
For the final three months of the year, total compensation was up 0.8 percent, the same increase as in the July-September quarter, and a rise that was in line with Wall Street expectations.
Wages and salaries in the fourth quarter rose by 0.8 percent, compared to a 0.6 percent increase in the third quarter, while benefit costs were up 1.1 percent, slightly below the 1.3 percent rise in the third quarter.
The Federal Reserve is keeping a close watch on wage pressures given the strong growth in the labor market in the past two years. While increases in the number of people working is good for the country, the concern at the Fed is that the economy could be growing so strongly that wage pressures will mount and trigger a rise in inflation.
The central bank, which was meeting on Tuesday, has been boosting interest rates since June 2004 to slow growth enough to keep inflation under control.
The report showed that there was a slowing of benefit costs in 2005 as employers struggled to deal with surging health costs. The 4.5 percent rise in the cost of benefits was the smallest increase since 1999. In the past two years, benefit costs surged by 6.3 percent in 2003 and 6.9 percent in 2004 as health care insurance premiums soared.
The increase in wages of 2.6 percent last year was only slightly higher than a 2.4 percent increase in 2004 and was below gains of 2.9 percent in both 2002 and 2003.