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MANUFACTURING EMPLOYMENT AND COMPENSATION IN CHINA - page 34 / 106

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MANUFACTURING EARNINGS AND COMPENSATION IN CHINA

With by far the world’s largest manufacturing workforce, at more than 100 million,94 China is widely known to have low labor costs. Statistics available for the first time for the entire country for 2002 now permit the estimation of those costs with some degree of precision. Employees in China’s city manufacturing enterprises received a total compensation of $0.95 per hour, while their noncity counterparts, about whom such data had not previously been generally available, averaged less than half that: $0.41 per hour. Altogether, with a large majority of manufacturing employees working outside the cities, the average hourly manufacturing compensation estimated for China in 2002 was $0.57, about 3 percent of the average hourly compensation of manufacturing production workers in the United States and of many developed countries of the world. Equally as striking, regional competitors in the newly industrialized economies of Asia had, on average, manufacturing labor costs more than 10 times those for China’s manufacturing workers; and Mexico and Brazil had manufacturing labor costs about 4 times those for China’s manufacturing employees.

This report evaluates the quality and usability of China’s statistics on manufacturing earnings and labor compensation for 2002--the most recent year for which adequate data are available--and for the period since 1990. The analysis demonstrates that China has released just enough relevant data on average annual earnings and labor-related employer costs to derive 2002 estimates of annual labor compensation for 30 million city manufacturing employees95 and 71 million noncity manufacturing employees--those working in town and village enterprises (TVE’s).96 Combining the published earnings figures and adjusted labor compensation figures for these two groups results in a reasonable approximation of average 2002 labor compensation per manufacturing employee in China. A national time series on manufacturing labor compensation for China could not be developed due to the lack of earnings data for the country’s noncity manufacturing workers prior to 2002; however, data on trends in real (price-adjusted) earnings for city manufacturing employees from 1990 onward are available and show a sharply upward trend since 1998.

Because China has not systematically collected and reported adequate data on actual hours worked by manufacturing employees for the whole year 2002 or, indeed, for any full year, this report uses published partial labor force survey information and a set of hypotheses to estimate annual hours worked by city and noncity manufacturing employees, thus calculating approximations of average 2002 hourly labor compensation in manufacturing for these two categories of manufacturing employees and for China as a whole. Labor compensation estimates are converted into U.S. dollars at the official exchange rate for 2002.

The report also assesses the probable biases in China’s statistics on manufacturing earnings and total labor compensation. The analysis that follows argues that city manufacturing enterprises in particular have powerful incentives to underreport earnings and other elements of the compensation provided to their employees. The main purposes of underreporting employee compensation are to avoid taxes and to minimize required employer and employee payments to social insurance and employee housing funds administered by urban authorities.

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