TECHNICAL NOTE

     Employer Costs for Employee Compensation (ECEC) measures the average cost to employers for
wages and salaries and benefits per employee hour worked.

     Wages and salaries are defined as the hourly straight-time wage rate or, for workers not paid
on an hourly basis, straight-time earnings divided by the corresponding hours.  Straight-time wage
and salary rates are total earnings before payroll deductions and include production bonuses,
incentive earnings, commission payments, and cost-of-living adjustments.  Not included in
straight-time earnings are nonproduction bonuses such as end-of-year payments, shift differentials,
and premium pay for overtime and for work on weekends and holidays; these payments are included
in the benefits component.

     Benefits include:  Paid leave-vacations, holidays, sick leave, and other leave; supplemental
pay-premium pay for work in addition to the regular work schedule (such as overtime, weekends and
holidays), shift differentials, and nonproduction bonuses (such as referral bonuses and attendance
bonuses); insurance benefits-life, health, short-term disability, and long-term disability;
retirement and savings benefits-defined benefit and defined contribution plans; and legally
required benefits-Social Security, Medicare, federal and state unemployment insurance, and workers’
compensation.

     Employer Costs for Employee Compensation includes data for the civilian economy, which includes
data from both private industry and state and local government.  Excluded from private industry are
the self-employed and farm and private household workers.  Federal government workers are excluded
from the public sector.  The private industry series and the state and local government series
provide data for the two sectors separately.

     The cost levels for this quarter were collected from a probability sample of approximately
57,600 occupations selected from a sample of about 12,200 establishments in private industry and
approximately 11,900 occupations from a sample of about 2,000 establishments in state and local
governments.  This quarter, the state and local government sample, which is replaced less frequently
than the private industry sample, was replaced in its entirety.  As a result of this replacement,
the number of state and local government occupations and establishments increased substantially
this quarter.  The private industry sample is rotated over approximately 5 years, which makes the
sample more representative of the economy and reduces respondent burden.  Data are collected for
the pay period including the 12th day of the survey months of March, June, September, and December.
The sample is replaced on a cross-area, cross-industry basis.

     When respondents do not provide all the data needed, a procedure for assigning missing values
is used.  This imputation procedure is comparable to that used for the Employment Cost Index (ECI).
For a description, see "Accounting for missing data in the Employment Cost Index," in the April 2006
issue of the Monthly Labor Review at http://www.bls.gov/opub/mlr/2006/04/art4abs.htm.

     The ECEC percent of total compensation estimates are calculated from cost aggregates and then
rounded to the published level of precision.  This method provides the most precise estimates of
the percent of total compensation; however, estimates of the percentage of total compensation
calculated from the published cost estimates may differ slightly from those calculated from the
unpublished cost aggregates.

     Beginning with this release, sample establishments are classified by the industry categories
based on the 2007 North American Industry Classification System (NAICS).  Prior to this release,
the 2002 NAICS classification system was used.  Differences between the two NAICS systems did not
affect any of the published series.  Within a sample establishment, specific job categories are
selected and classified into about 800 occupational classifications according to the 2000 Standard
Occupational Classification (SOC) system.  Individual occupations are combined to represent one of
ten intermediate aggregations, such as professional and related occupations, or one of five
higher-level aggregations such as management, professional, and related occupations.  Both the
NAICS and the SOC classification systems are defined by the US Office of Management and
Budget (OMB).  For more detailed information on NAICS and SOC, including background definitions,
see the BLS Web sites: www.bls.gov/bls/naics.htm and www.bls.gov/soc/home.htm.

     The state and local government sample consists of 152 areas that represent the Nation’s 361
metropolitan statistical areas and 573 micropolitan statistical areas as defined by OMB in
June 2003 and the remaining portions of the 50 states.  The private industry sample consists of
151 metropolitan areas and nonmetropolitan areas that represent the Nation’s 326 metropolitan
statistical areas as defined by OMB in 1994 and the remaining portions of the 50 states.
Metropolitan areas are defined as Metropolitan Statistical Areas (MSAs) or Consolidated Metropolitan
Statistical Areas (CMSAs).  Nonmetropolitan areas are counties and other geographic designations
that do not fit the metropolitan area definition.  The private industry sample will begin the
conversion to June 2003 OMB area definitions in the future.

     Current employment weights are used to calculate cost levels.  These weights are derived from
two BLS programs:  the Quarterly Census of Employment and Wages (QCEW) and the Current Employment
Statistics (CES).  Combined, these programs provide the appropriate industry coverage and currency
of data needed to match the ECEC.  For more information on these changes, see "Changes in
Calculations for the BLS Employer Costs for Employee Compensation Data, March 2007," at
http://www.bls.gov/ncs/ect/sp/ececcalc.pdf.  In most instances, private industry employment
weights used in the ECEC were total employment estimates for 2-digit industry groups, such as
utilities (NAICS 22) or wholesale trade (NAICS 42).  In a few cases, more detailed private industry
employment weights were used.  These include 4-digit educational establishments -- elementary and
secondary schools (6111), junior colleges (6112), and colleges and universities (6113) -- as well as
the 6-digit aircraft manufacturing industry (336411).  For state and local governments, a more
aggregated level was used reflecting the level of detail published by the CES program.  For both
private and government establishments, the employment data were apportioned based on the sampling
weights assigned to the Employment Cost Index (ECI) sample.

     The ECI, which measures the change in employer costs for employee compensation, is calculated
with fixed 2002 employment counts to prevent employment shifts among occupations and industries
from influencing the changes.  Therefore, changes over time in the Employer Costs for Employee
Compensation survey will differ from those in the ECI.

     Historical ECEC data are available in three listings, all available at:
http://www.bls.gov/ect/#tables.  The first historical listing covers data for the March references
periods from 1986 to 2002.  These data use the Standard Industrial Classification (SIC) and
Census of Population classification systems.  The second listing contains data for the March,
June, September, and December reference periods from June 2002 to December 2003.  These data
also are based on the SIC and Census of Population classification systems.  The final listing
includes data for March 2004 to the current reference period.  These are based on the NAICS and
SOC classification systems.  Also, data and related articles are included in the bulletin,
Employer Costs for Employee Compensation, 1986-99 (Bulletin 2526), available upon request by
calling (202) 691-6199 or by email to:  NCSinfo@bls.gov.

     Beginning with the March 2004 quarter, historical data are available based on the 2002 North
American Industry Classification System and the 2000 Standard Occupational Classification.
The new historical tables are available on the Internet site http://www.bls.gov/ncs/ect/home.htm
or upon request.  Information on how costs are calculated appears in "Measuring Trends in the
Structure and Levels of Employer Costs for Employee Compensation," Compensation and Working
Conditions, Summer 1997, at http://www.bls.gov/opub/cwc/archive/summer1997art1.pdf.  An article
on changes in employer compensation costs, "Tracking Changes in Benefit Costs," appears in
Compensation and Working Conditions, Spring 1999, at
http://www.bls.gov/opub/cwc/archive/spring1999brief3.pdf.

Relative Standard Errors

     Because the ECEC is a sample survey, it is subject to sampling errors.  Sampling errors are
differences that occur between the results computed from a sample of observations and those
computed from all observations in the population.  The estimates derived from different samples
selected using the same sample design may differ from one another.  A measure of the variation
among these differing estimates is the standard error.  It can be used to measure the precision
with which an estimate from a particular sample approximates the expected result of all possible
samples.  For more information on the calculation procedure, see "Changes in Variance Estimation
Calculations for the BLS Employer Costs for Employee Compensation Data, March 2007," at
http://www.bls.gov/ncs/ect/sp/ececvmet.pdf.  The chances are about 68 out of 100 that an estimate
from the survey differs from a complete population figure by less than the standard error.  The
chances are about 90 out of 100 that this difference would be less than 1.6 times the standard
error.  All the statements of comparisons appearing in this publication are significant at a 1.6
standard error level or better, unless otherwise indicated.  This means that for differences
cited, the estimated difference is greater than 1.6 times the standard error of the difference.
The relative standard errors (RSE) for all estimates are available shortly after the release
is issued at http://www.bls.gov/ncs/ect/#tables.

     For a more detailed explanation of relative standard errors, see "Measuring Trends in the
Structure and Levels of Employer Costs for Employee Compensation," Compensation and Working
Conditions, Summer 1997, at http://www.bls.gov/opub/cwc/archive/summer1997art1.pdf.  For a
detailed explanation of how to use standard error data to analyze differences in changes over
time, see "Analyzing Year-to-Year Changes in Employer Costs for Employee Compensation,"
Compensation and Working Conditions, Spring 1998, at
http://www.bls.gov/opub/cwc/archive/spring1998art3.pdf.  This article supplements an article from
the Summer 1997 issue of Compensation and Working Conditions, "Explaining the Differential Growth
Rates of the ECI and ECEC," available at http://www.bls.gov/opub/cwc/archive/summer1997art2.pdf
which examined how differences in the construction of these measures contribute to differing
trends.

     Standard errors relate to differences that occur from sampling errors, but not from
nonsampling errors.  Nonsampling errors are not measured and include survey nonresponse and
data collection and processing errors.  Survey nonresponse occurs when sample members are
unwilling or unable to participate in the survey.  Data collection errors include inaccurate
data by respondents and definitional difficulties.  Processing errors include errors in recording,
coding, and entering data.  Although nonsampling errors are not measured, BLS quality assurance
programs include procedures for reducing such errors.  These procedures include data collection
reinterviews, observed interviews, computer data edits, and systematic review of reports on which
data are recorded.  Extensive field economist training also is conducted to maintain high data
collection standards.

Comparing private and public sector data

     Aggregate compensation cost levels in state and local government should not be directly
compared with those in private industry.  Differences between these sectors stem from factors
such as variation in work activities and occupational structures.  Manufacturing and sales, for
example, make up a large part of private industry work activities, but are rare in state and local
government.  Professional and administrative support occupations (including teachers) account for
two-thirds of the state and local government workforce, compared with one-half of private industry.

     A detailed examination of differences in compensation levels and trends between private
industry and state and local government may be found in "Cost of Employee Compensation in Public
and Private Sectors," Monthly Labor Review, May 1993, on the BLS Internet site
http://www.bls.gov/opub/mlr/1993/05/contents.htm and "Compensation Cost Trends in Private Industry
and State and Local Governments," Compensation and Working Conditions, Fall 1999, at
http://www.bls.gov/opub/cwc/archive/fall1999art2.pdf.

Obtaining information

     Articles, bulletins, and other information may be obtained by calling (202) 691-6199, sending
e-mail to NCSinfo@bls.gov, or visiting the Internet site http://www.bls.gov/ect.  Information
in this release will be made available to sensory impaired individuals upon request.
Voice phone: (202) 691-5200; Federal Relay Service Number:  1-800-877-8339.