TECHNICAL NOTE

     The Employment Cost Index (ECI) is a measure of the change in the cost of labor, free from
the influence of employment shifts among occupations and industries.  The compensation series
includes changes in wages and salaries and employer costs for employee benefits.  The wage and
salary series and the benefit cost series provide the changes for the two components of
compensation.

     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, excluding premium pay for
overtime and for work on weekends and holidays, shift differentials, and nonproduction bonuses
such as lump-sum payments provided in lieu of wage increases.  Production bonuses, incentive
earnings, commission payments, and cost-of-living adjustments are included in straight-time
wage and salary rates.

     Benefits covered by the ECI are:  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.

     The ECI provides data for the civilian economy, which includes the total private nonfarm
economy excluding private households, and the public sector excluding the federal government.
The private industry series and the state and local government series provide data for the two
sectors separately.

     Sample establishments are classified by industry categories based on the 2007 North American
Industry Classification system (NAICS).  Prior to December 2007, the 2002 NAICS classification
system was used.  Differences between the two NAICS systems did not affect any of the published
ECI series.  All industries are classified into two sectors--goods-producing and service-providing,
except for public administration, which is a separate category in state and local government.
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.

     To be included in the ECI, employees in occupations must receive cash payments from the
establishment for services performed and the establishment must pay the employer’s portion
of Medicare taxes on that individual’s wages.  Major exclusions from the survey are the
self-employed, individuals who set their own pay (for example, proprietors, owners, major
stockholders, and partners in unincorporated firms), volunteers, unpaid workers, family members
being paid token wages, individuals receiving long-term disability compensation, and U.S. citizens
working overseas.

     Data for the March 2008 quarter were collected from a probability sample of approximately
57,000 occupational observations selected from a sample of about 12,200 establishments in private
industry and approximately 11,800 occupations from a sample of about 1,900 establishments in
state and local governments.  The state and local government sample, which is replaced less
frequently than the private industry sample, was replaced in its entirety in September 2007.
As a result of this replacement, the number of state and local government occupations and
establishments increased substantially.  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.

     Fixed employment weights are used each quarter to calculate the most aggregate series--civilian,
private, and state and local government.  These fixed weights are also used to derive all of the
industry and occupational series indexes.  Beginning with March 2006 estimates, 2002 fixed
employment weights from the Bureau’s Occupational Employment Statistics survey were introduced.

     For the series based on bargaining status, census region and division, metropolitan area
status, and for series excluding incentive paid occupations, fixed employment data are not
available.  The employment weights are reallocated within these series each quarter based on
the current ECI sample.  The nursing care facilities indexes in private industry are estimated
using fixed-employment weights derived from staffing patterns estimated from the four-digit
industry NAICS group 6231, nursing care facilities, a sub-industry of the larger industry group,
nursing and residential care facilities (NAICS 623).  The indexes for these series, consequently,
are not strictly comparable with those for the aggregate, occupational, and industry series.
A fuller explanation of the calculation of index numbers appears in chapter 8 of the BLS Handbook
of Methods, at the web site www.bls.gov/opub/hom/pdf/homch8.pdf.

     Beginning with the release of the March 2006 data, indexes were rebased to December 2005=100
from June 1989=100.  The percentage changes shown in the current- and constant-dollar historical
tables were calculated from the rebased indexes.  Thus, changes may differ from those originally
published because of rounding.

     The ECI 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 ECI 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 estimates
will begin the conversion to June 2003 OMB areas definitions in December 2008.

     Seasonally adjusted data for selected ECI series began with the December 1990 ECI release.
Seasonal adjustment removes the effects of events that follow a more or less regular pattern each
year.  These adjustments make nonseasonal patterns easier to identify.  The seasonal adjustment
factors are recalculated once per year.  The March release contains data reflecting the newly
updated seasonal adjustment factors.  The historical data for the last five years are then revised
based on the newly estimated factors.  The seasonal factors for 2008 and revised seasonally
adjusted indexes for the past 5 years are available at www.bls.gov/ect or upon request.  Several
new seasonally adjusted indexes and 3-month percent changes of occupational series were added
this quarter, with historical data available beginning with March 2003.

     Because the ECI 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 other.  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.  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.  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 ECI uses standard errors to evaluate published series.  To assist users in ascertaining
the reliability of series, the standard errors for all estimates (excluding seasonally adjusted
series) are available on the BLS Web site at www.bls.gov/ect shortly after the publication of
the news release.

     When determining data to be used in contract negotiations, it is important to note that
differences by bargaining status may be due to factors other than union status, such as
occupational and industry mix.  An important consideration when choosing a series for escalation
is the sampling error.  For more information, see www.bls.gov/ect/escalator.htm.

     More detailed information on the ECI is available from several sources.  These include a
chapter, "National compensation measures," (www.bls.gov/opub/hom/pdf/homch8.pdf) from the BLS
Handbook of Methods, and several articles published in the Monthly Labor Review and Compensation
and Working Conditions.  The articles and other descriptive pieces are available at
www.bls.gov/ect/#publications, by calling (202) 691-6199, or sending e-mail to NCSinfo@bls.gov.

     Historical ECI data, using industry categories based on the Standard Industrial Classification
(SIC) System and classifying jobs into occupational classifications according to the Census of
Population, are available dating from the first publication of each series to December 2005 at:
www.bls.gov/web/echistry.pdf.  Data are also available for series based on the 2002 and
2007 North American Industry Classification Systems (NAICS) and the 2000 Standard Occupational
Classification (SOC) beginning in March 2001, using December 2005=100 as the base period at:
www.bls.gov/web/echistrynaics.pdf.

     In addition, constant-dollar ECI series derived from the Consumer Price Index for All Urban
Consumers (CPI-U) are available.  The constant-dollar series are calculated by converting the CPI-U
to the same base as the ECI.  The ECI for each quarter is then divided by the converted CPI-U for
the same reference period.  The CPI-U U.S. City Average All Items is used to compute all series
except for the regional estimates, which use corresponding CPI regional data.

     Supplemental data from the ECI, providing 12-month percent changes in employer costs for
health insurance in private industry, are also available at www.bls.gov/ect/sp/echealth.pdf.

     The costs per hour worked of compensation components, based on data from the ECI, are published
in a separate news release titled "Employer Costs for Employee Compensation" (ECEC).  The next
ECEC release is scheduled for 10:00 AM EDT, Wednesday, June 11, 2008.  Historical ECEC data are
also available in summary documents.  Both the release and historical data are available at
www.bls.gov/ect, by email to NCSinfo@bls.gov, or (202) 691-6199.  Since the ECEC is calculated
with current employment weights rather than the fixed weights used in computing the ECI,
year-to-year changes in the cost levels usually differ from those in the ECI.