April 29 (Reuters) - Franklin Resources, better known as Franklin Templeton, posted a fall in second-quarter profit on Monday, hurt by higher expenses as it paid employees higher compensations amid the backdrop of a tight labor market and wage inflation.

Higher expenses in the quarter offset higher investment management fees.

WHY IT'S IMPORTANT

U.S. job growth blew past expectations in March and wages increased at a steady clip, suggesting the economy ended the first quarter on solid ground. The unemployment rate has remained below 4% for 26 consecutive months and has kept the labor market tight.

The job market and a cost-of-living crisis have together prompted a broad hike in employee compensations by U.S. financial firms.

Meanwhile, asset managers are also dealing with increased competition as higher interest rates make cash an attractive investment option for customers. The move has led to the industry shelling out more to market its products in a bid to attract inflows.

BY THE NUMBERS

- Total operating expenses increased 21% to $2.02 billion.

- Franklin's investment management fees, however, rose to $1.71 billion from $1.57 billion a year earlier.

- Total adjusted earnings per share was 56 cents for the January-March quarter, below 61 cents a year earlier.

MARKET REACTION

Shares of the investment manager were down 4.3% in early trading.

(Reporting by Pritam Biswas in Bengaluru; Editing by Krishna Chandra Eluri)