While workers in the U.S. private sector have seen their paychecks rise over the past year, their actual purchasing power has diminished.
The Employment Cost Index, released this Friday by the Bureau of Labor Statistics (BLS), indicates that private sector wages and salaries rose by 3.1% nominally over the twelve months leading to September 2026. However, when adjusted for inflation, they actually fell by 0.6%.
This data highlights a growing gap: prices have been increasing at a faster pace than wages, diminishing the purchasing power of millions of households.
Total compensation in the private sector, which includes wages, health insurance, retirement benefits, and other perks, increased by 3.4% nominally in the same period. Yet, this wasn't sufficient to counterbalance the rising cost of living.
In the third quarter of 2026, covering July to September, private sector wages increased by 0.8% after seasonal adjustments, matching the growth in total compensation. These quarterly figures, which track three-month growth rates, should not be confused with annual data.
Within the private sector, a significant disparity exists between unionized and non-unionized workers. Unionized employees saw a wage increase of 4.3% year-over-year, while their non-union counterparts saw just a 3.0% rise. In terms of total compensation, union workers received a 4.3% increase compared to 3.3% for non-union employees.
Health insurance was one of the key factors driving labor costs, with private sector health benefits rising by 6.4% year-over-year—marking the largest growth component within the benefits package.
State and local government workers faced a similar scenario: their wages grew by 3.2% nominally year-over-year but experienced a 0.5% real decrease.
In the South census region, which includes Florida, private sector wages rose 3.5% year-over-year and 1.0% for the quarter, slightly outperforming the national average, although the BLS does not provide state-specific data.
The inflationary context sheds light on this paradox. The Consumer Price Index for September showed a 3.7% year-over-year increase, largely driven by rising gasoline prices.
Just a day before the ECI release, the Bureau of Economic Analysis (BEA) reported that the PCE index—the inflation measure used by the Federal Reserve—reached 3.6% year-over-year in September, with a monthly increase of 0.5%, the largest in six months.
During the same month, real disposable personal income fell by 0.3%: nominal income grew by just 0.2%, while prices rose by 0.5%.
Although the ECI from the BLS and the PCE from the BEA measure different phenomena with distinct methodologies, both point in the same direction: household incomes are not keeping pace with rising prices.
The long-term trend exacerbates this diagnosis. Private sector wages were growing at 4.1% year-over-year in March 2024; by September 2026, this growth had slowed to 3.1%, while inflation remained high, indicating a cumulative erosion of purchasing power over more than two years.
The next release of the Employment Cost Index, covering the fourth quarter of 2026, is scheduled for January 29, 2027. This will reveal whether the real wage decline trend is reversing or worsening.
Understanding the Decline in U.S. Private Sector Purchasing Power
Why have private sector wages lost purchasing power despite increases?
Private sector wages have lost purchasing power because inflation has risen faster than wages, eroding the real value of income.
How has health insurance impacted labor costs in the private sector?
Health insurance has significantly impacted labor costs, with benefits increasing by 6.4% year-over-year, contributing to overall higher labor expenses.
What is the difference between the ECI and the PCE?
The ECI measures changes in labor costs, while the PCE is a broader measure of inflation. They use different methodologies and focus on different economic aspects but both indicate that incomes are not keeping up with inflation.