Shifting Compensation Costs

Shifting Compensation Costs in the Los Angeles Metropolitan Area: An Overview

Workers for private companies in the Los Angeles Metropolitan Area saw wage increases for a 12-month period ending March 2022. This increase was reported by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor. The 5.2 percent compensation gain overshadows the previous year’s report of a 4.2 percent increase in compensation costs for employers.

Comparing LA and US Compensation

From March 2020 through March 2021, the Los Angeles area outperformed the nation on rising compensation for workers. In March 2020, the pandemic took over headlines, leading to massive layoffs and business closings, as LA workers saw wage growth of 3.5 percent.

Meanwhile, average American workers saw a pay raise of 2.8 percent. Two years later, LA’s 5.2 percent wage increase eclipsed the nation’s 4.8 percent increase.

Except for a few quarters, LA compensation ticked up throughout the pandemic, similar to US data. The LA region is one of 15 metros in America, where compensation cost data is available. Phoenix, one of the other available metros, outperformed LA with a 6.4 wage increase for workers.

Employment Cost Index (ECI)

Each quarter the employment cost index (ECI), reported by BLS, indicates labor conditions.

The metro with the greatest increase in compensation costs was Seattle, rising by 7.8 percent. The city’s ordinance to raise Seattle’s minimum wage to $15.75 for employees of small businesses and $17.27 for large companies took effect in 2015. Washington raised its minimum wage at the state level in January 2022 from $13.69 per hour to $14.49 per hour.

The ECI is a metric viewed by economists but doesn’t get covered by the media as much as the consumer price index (CPI), another BLS figure. Both indexes can be used to analyze and anticipate how employment conditions affect the overall economy. While the CPI measures inflation in consumer costs, the ECI measures inflation in labor costs for employers.

These metrics help employers weigh compensation rates and their impact on the broader economy. Rising pays largely reflect the increased cost of living due to energy costs, economic effects from pandemic shutdowns, and the supply chain crisis. The “great resignation” was a culmination of factors that pushed many workers into seeking new jobs due to dissatisfaction with insufficient wages and benefits.

Post-Pandemic Employment

Despite rising compensation in Los Angeles throughout the pandemic, in the post-pandemic world, many workers are rethinking their career paths to allow for greater flexibility in pursuing a work-life balance.

In March 2022, as California lifted mask mandates, the Los Angeles Times reported that both Los Angeles and San Francisco experienced large residential declines during the two-year COVID-19 period. Los Angeles County saw a reduction in 160,000 residents, which was more than any other county in the nation.

Housing is simply unaffordable for many workers in LA, whether they pay a mortgage or rent. The rise in work-at-home jobs has contributed to this sudden migration to more affordable areas, even with rising pay in LA.

Are you looking for a consulting firm with experience working with salary, legal, and other human resources issues? Contact our professionals at McKnight Associates, Inc.  We are ready to offer you hands-on human resources consulting for colleges, universities, medical centers, and organizations of all sizes.