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MANUFACTURING EMPLOYMENT AND COMPENSATION IN CHINA - page 43 / 106

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paying income tax and any required social insurance deductions, while the employer can avoid paying the required social insurance payments for the employee. As a result, actual manufacturing employment may be underreported in China’s statistics, especially in the urban figures.

Second, even when employment is reported to authorities, both employer and employees tend to collude to minimize reported earnings. Employers in urban areas are required to remit to the city government social insurance and other payments that are calculated as a percentage of the unit’s reported total earnings. These required payments are high by international standards and have been increasing rapidly: “high contribution rates are leading to high rates of evasion in the basic pension system,” as well as evasion of other required social welfare payments.121 Many employers might perceive that the required payments are squeezing their profits and are burdensome; they would therefore have an incentive to underreport employee earnings. Some of the money actually given to employees (as bonuses, overtime pay, or financial subsidies of various kinds) may not be reported as earnings, instead getting shifted to the welfare fund category or other unspecified labor-related cost category; thus, it is important to include these labor cost categories in a realistic estimate of urban manufacturing labor compensation in China. It is also likely that many urban enterprises underreport or leave out of reported earnings the value of some benefits provided in kind to employees (for example, meals, housing, transportation, and food distributions). Therefore, it is likely that even the earnings of urban manufacturing workers whose employment is reported to authorities are systematically underreported.

Those employees whose employment is not reported to the authorities at all, whether in urban or rural areas, are usually paid lower wages than other employees. According to anecdotal evidence, the going rate for an unskilled rural or migrant worker in nonagricultural work in China today is about 500-600 yuan per month, plus whatever benefits it is essential to provide, such as simple meals, dormitories, and emergency medical assistance. Some rural workers are paid as little as 300 yuan per month, while more desirable workers might get as much as 800 yuan monthly. If unreported workers in the manufacturing sector average cash pay of 550 yuan per month, and if their simple accommodations and food cost another 200 yuan per month, then their earnings total 750 yuan, or U.S.$91, per month, but only when they are actually working. Thus, if, for 3 months of the year, they are not engaged in paid employment while they are planting and harvesting and while taking time off for holidays, illnesses, and personal business, then their annual take-home cash plus in-kind benefits would be 6,750 yuan per year. This estimate is close to the reported data that yield earnings of 6,927 yuan for TVE manufacturing workers in 2002.

Annual dollar compensation for manufacturing workers

To translate reported average annual earnings for China’s manufacturing workers into dollars (see table 8), the analysis that follows uses official nominal exchange rates between U.S. dollars and Chinese yuan. The Chinese yuan was pegged to the U.S. dollar at 8.28 yuan per dollar for a decade from 1994 to August 2005; this exchange rate is the correct one for 2002 data. 122

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