Marcia Hultman

Cabinet Secretary

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South Dakota e-Labor Bulletin

October 2021

Employers asked, we listened:

More current occupational wage estimates available

It is no secret South Dakota has a strong labor market. While many states shut down completely during the pandemic, the land of Great Faces and Great Places did not. As of August 2021, South Dakota’s unemployment rate was back to a pre-pandemic low of 2.9%. A low unemployment rate indicates nearly everyone who wants a job is employed. This is a great thing unless you are an employer looking to hire workers. South Dakota’s employers know it is important to remain competitive. A successful business cannot be functional without a strong, talented and highly capable workforce. With other employers competing for the same workers, employers must remain competitive and offer a fair wage. One way is to review wages and benefits being offered to employees.

Aged wage data; say what?

To assist employers as they review pay scales, the Labor Market Information Center (LMIC) recently released “aged occupational wage data.” What exactly is aged occupational wage data and how might it help your business?

Many employers are familiar with a survey LMIC conducts in cooperation with the U.S. Bureau of Labor Statistics (BLS) entitled the Occupational Employment and Wage Statistics (OEWS) survey.

The OEWS wage survey is based on a three-year data collection cycle; surveys are sent to employers twice a year to capture data for second and fourth quarter reference periods. Survey recipients are scientifically selected based on business activity, geographic location and worker levels. Over the three-year survey cycle, approximately 6,300 establishments are contacted. For the most current survey year (2020), approximately 2,000 surveys were sent to establishments in South Dakota. More than 1,600 of the establishments responded, resulting in an 82% response rate. Those establishments responding accounted for 91%of the workers in the sample. BLS requires a 75% response rate for the OEWS program.

The wage data released is based on a three-year data-cycle. Estimates produced using only one year of sample data would be subject to a higher sampling error (due to the smaller sample size). Estimates based on more than one year of data provide significant sampling error reductions (particularly for small geographic areas and occupations), and the multiple years of data allow for the production of estimates at finer levels of geographic and occupational detail.

Utilizing the Employment Cost Index (ECI)

The use of multiple years of sample data to produce wage estimates requires the adjustment of wage data from previous reference periods—a procedure referred to as "wage updating." The OEWS program applies the current Employment Cost Index (ECI) to previous reference period survey data to update the microdata used to produce the annual wage data. This brings previous panel wages up to date with current panel wage data making the data produced the most current wage data available at the time it is released.

As with many data sets, by time the data has been released it seems a bit antiquated. Annual occupational wage data is vital information. It serves users well when using the data as a career exploration tool and assisting those determining what types of post-secondary training programs to offer. It also serves employers and economic developers well as they assist employers looking to expand or move into an area by providing them with a snapshot of capital expenses they can expect to incur when staffing their workforce.

However, employers looking for a jumping off point when determining what salary to offer new employees or how much of a pay raise to offer existing workers may want to utilize more timely wage estimates. The most current occupational wage information available is previous quarter wage data. This occupational data is produced using the Local Employment and Wage Information System (LEWIS). This application allows for the creation of occupational wage reports which vary in scope from the annual OEWS wage statistics. Once the microdata from the OEWS survey along with several other data sets have been updated for the current wage year (in this case 2020), the data can be manipulated to produce a variety of reports. One of those reports allows for artificial aging by applying the most recent Employer Cost Index (ECI) data available. Remember, the OEWS wage estimates from the first two years’-panels is updated to bring the wages in those panels up to date with the third-year panel wage data. As the year progresses, data can continue to be updated by applying the most current ECI data using the LEWIS software.

Finding the data

The most current occupational wage data available is second quarter (June 2021); you can download it in PDF or Excel format from our menu page for occupational wage data.

Cautions when using the data

Please keep in mind this wage data is an estimation based on results of the OEWS. The ECI data is applied in the LEWIS system. In a nutshell, the ECI contains different indexes for ECI occupational families. When these indexes are applied to individual occupations, the wage data is aged according to the current ECI index for that occupational family.

It is also important to keep in mind a couple of caveats when utilizing quarterly occupational wage data. First, the ECI is based on a sample survey conducted at the national level. ECI data is not collected at either a regional or statewide level. Therefore, the aging process applies a national ECI component to South Dakota occupational wage data. Although actual occupational wages may grow/decline at a slightly different rate, the wages provided should be a relatively close estimate to what is actually occurring in the labor market. Below is a quick overview of the ECI: what it is, how it is collected and how it is used and by whom.

What is the Employment Cost Index (ECI)?

The Employment Cost Index (ECI) is a quarterly measure of the change in the price of labor. Simply put, it details the growth of total employee compensation. The index measures changes in the cost of compensation not only for wages and salaries, but also for an extensive list of benefits. As a primary economic indicator, the ECI is closely watched by economists for signs of an overheating/stagnation of the economy as well as inflation. Employers use the index to evaluate the labor market and to remain competitive by retaining a high-quality workforce by paying competitive wages and offering workers benefits such as health insurance, paid time off and retirement.

How is ECI data collected?

The ECI is prepared and published by BLS, which is the statistical arm of the U.S. Department of Labor. It is a fixed weight index, which means it controls for changes occurring over time in the industrial-occupational composition of employment. The ECI is computed from the compensation cost data collected from a sample of jobs within sampled business establishments and government operations. The data are weighted to represent the universe of establishments and occupations in the nonfarm private sector and in state and local governments. The Index excludes federal, private-household and unpaid family workers, as well as self-employed individuals and owners of establishments. The data is compiled through separate surveys of non-farm businesses (with about 4,500 units sampled) and state and local governments (with about  1,000  sampled). The index has a base weighting of 100. The ECI is part of the larger National Compensation Survey.

Employee benefits are calculated as cost per hour worked across 21 benefits ranging from Social Security to paid time off. The survey covers all occupations in the private economy, excluding farms and households. The public sector includes state and local governments but excludes the federal government.

How is the ECI used and by whom?

Because the ECI measures the change in total employee compensation each quarter, it is important to various groups for different reasons. Businesses and the federal government are the two largest users of this data.

Employers observe the index to make appropriate adjustments in pay scales and benefits offered. If the index jumps 2% from the previous year or quarter, an employer may be inclined to give workers an equivalent raise. Employers looking to remain competitive and attract the best and most talented workers may increase wages and benefits more than the percentage increase in the ECI.

Government agencies utilize this benchmark index to gauge the health of the economy. It informs officials when the economy is healthy, overheating or stagnating. For instance, the ECI is one of the main economic indicators used by the Federal Reserve when setting monetary policy. Economists use the index to measure the change in labor costs to gauge the health of the economy. The ECI tracks the cost of compensating employees each quarter. An upward sloping trend generally represents a strong and growing economy as employers pass on profits to their employees through wages and benefits. However, a greater than expected steepening of the wage and benefits trend over time may indicate inflation may follow. Wage pressure increases in tandem with inflation because compensation tends to increase before companies hike prices for consumers.

The ECI is also watched by investors largely for its inflationary insights. Wages represent the lion’s share of the total cost for a company to produce a product or deliver a service in the marketplace. The relative percentage will vary by industry, making the data released valuable on an inter-industry level.

For more information on the ECI, check out the U.S. BLS website.

To find the occupational wage data for the most current quarter possible (aged based on the ECI), see our Occupational Wage menu page and select the second option.  

Another way to think about the ECI

You may be familiar with the Consumer Price Index (CPI), which measures changes over time in the prices consumers are paying for a variety of goods and services used in an average household. You could think of the ECI as very similar, only from an employer’s perspective—the changes over time in the costs employers are paying for labor.

Stay tuned for an article coming soon about the CPI.