Compensation costs increase with establishment size

Employer costs for employee compensation are generally higher in large establishments than in small. In March 1997, compensation costs for establishments with 500 or more employees were 46 percent higher than for establishments with 100-499 employees, and 61 percent higher than for establishments with less than 100 employees.

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The proportion of total compensation made up of benefit costs was greater in large establishments. Benefit costs accounted for 30.8 percent of total compensation costs for workers in establishments with 500 or more employees, compared with 24.9 percent of compensation in establishments with less than 100 workers.

In addition to employment size, a variety of factors—including differences in the mix of industries, occupations, union coverage, and location—influence compensation cost levels. Compared with small establishments, large establishments tend to be located in metropolitan areas and are more likely to be covered by union contracts, two factors often associated with higher compensation costs.

Note that establishment size may differ from firm size. The Bureau of Labor Statistics defines an establishment as a single physical location where business is conducted. Establishments can be parts of a larger company. About three-quarters of the employees in small establishments work in small, independent private businesses; the remainder are in establishments that are part of larger firms.

These data are a product of the BLS Employment Cost Trends program (specifically the Employer Costs for Employee Compensation series). Additional information is reported in the bulletin, Employer Costs for Employee Compensation, 1986-97, Bulletin 2505, August 1998. A summary of compensation costs trends from 1981 to 1997 based on Employment Cost Indexes is available from "Total compensation costs double from 1981 to 1997," The Editor's Desk.