income is then calculated in PPP international dollars. These alternative estimates allow us to select the appropriate measures for different purposes.
To use PPP exchange rates, one should estimate the proportion of earnings that employees actually get to spend in the form of take-home pay, net of deferred compensation. (Total labor compensation costs per hour worked do not provide an accurate portrayal of worker income because they include costs that are not paid directly to the worker.) This calculation is complex for urban manufacturing employees, because their take-home pay is composed of part of reported earnings (reported earnings minus deductions for income tax and required employee social insurance payments) plus other cash payments that have been kept out of the earnings category in order to minimize tax and social insurance payments for employer and employee. Statistics are not available on take-home pay as a percent of reported earnings, but in some cases take-home pay is actually much higher than reported earnings because of the non-wage cash payments to employees. For a simple illustration of the purchasing power of the take-home pay of urban manufacturing employees, this author will simply assume that for urban manufacturing workers in 2002, their take-home pay is the same as reported earnings because, after taxes and social insurance payments have been deducted from earnings, the urban manufacturing employees have received other non-taxable cash payments from their employer.
As shown in tables 6 and 8, manufacturing employees in urban units received reported earnings averaging 11,152 yuan for the whole year 2002. Assuming that their actual take-home pay was approximately the same as reported earnings, for reasons discussed above, their cash income for the year was about U.S.$1,347 based on the commercial market exchange rate, and PPP U.S.$6,263 in international PPP dollars. (For calculating labor compensation in international dollars, multiply labor compensation in dollars at the official exchange rate times 4.65.)133 This means that the average city manufacturing employee in China in 2002 could purchase goods and services that gave the worker and family a living standard equivalent to annual take-home pay of about U.S.$6,300 in the U.S. City manufacturing workers averaged take-home pay of about 929 yuan or U.S.$112 per month, which is equivalent to PPP U.S.$522. On an hourly basis, take-home pay of Chinese city manufacturing workers was about 5.12 yuan or U.S.$0.62, equivalent to PPP U.S.$2.87. They could purchase about what an American worker could buy with take-home pay of almost $3 per hour.
Of course the TVE manufacturing employees have much lower living standards. In their case, most of their income is cash, very little if any is deducted for required income tax and social insurance payments, but other non-wage cash benefits are probably modest as well. Again, as an illustration, this author assumes that actual take-home pay is about equivalent to reported earnings. Tables 6 and 8 show that TVE employees averaged earnings of 6,927 yuan for the entire year 2002, which was equivalent to U.S.$837 and PPP U.S.$3,890. Therefore, the living standard of China’s TVE manufacturing employees was equivalent to that of an American worker with annual take-home pay of less than $4,000. Monthly take-home pay for TVE manufacturing workers was about 577 yuan or U.S.$70, with purchasing power equivalent to PPP U.S.$324. Hourly cash in hand for TVE manufacturing employees in China was approximately 3.15 yuan or U.S.$0.38, which had purchasing power of about $1.77 in international PPP dollars.