Glossary
Employment Cost Index (ECI)
The Employment Cost Index measures the change in employer labor cost, wages plus benefits, holding the mix of jobs fixed. Labor-heavy service and construction contracts use it to escalate the workforce portion of a price without re-pricing the whole contract.
Also called: ECI, labor cost index, compensation index.
Because ECI holds the occupational mix constant, it isolates pay-rate
change from shifts in who is employed. A raw average-hourly-earnings
figure rises when high-wage roles grow as a share of headcount; ECI does
not.
BLS publishes ECI quarterly, not monthly, and with a longer
publication lag than PPI, so a labor clause
usually escalates annually or quarterly rather than monthly. Series codes
begin with CIU.
Example: a facilities contract escalates its labor line by the
year-over-year change in the ECI for total compensation, private industry.
If the index moves from 155.0 to 160.7, the labor line rises
160.7 / 155.0 = 1.037, or 3.7 percent; materials and pass-throughs are
escalated separately.
See PPI and
CPI vs PPI for price adjustment.
Related terms
An escalation clause (also called a price escalation clause or price adjustment mechanism) is contract language that adjusts a price up or down over time using a named index, a formula, and a schedule, so neither party carries the full risk of cost changes between signing and delivery.
The escalation factor is the multiplier a clause produces by dividing the current index value by the base index value. A factor of 1.10 means a 10 percent increase; it is applied to the covered portion of the price, not always the whole contract.
A not-seasonally-adjusted index reports the actual measured price change, including regular seasonal swings. Price escalation clauses use NSA data because the seasonally adjusted version is a modelled estimate that agencies revise and that two parties cannot independently reproduce.
The Producer Price Index measures the average change over time in the selling prices domestic producers receive for their output. It is the index most business-to-business escalation clauses use, because it tracks wholesale input costs rather than retail prices.
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