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August 2005, Vol. 128, No.8
Manufacturing earnings and compensation in China
With by far the world’s largest manufacturing workforce, at more than 100 million,1 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 estimates 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, labor costs more than 10 times those for China’s manufacturing workers; and Mexico and Brazil had labor costs about 4 times those for China’s manufacturing employees.
This article 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 employees2 and 71 million noncity manufacturing employees—those working in town and village enterprises (TVE’s).3 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 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 sharp upward trend since 1998.
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1 The companion piece to this article, "Manufacturing employment in China" (Monthly Labor Review, July 2005, pp. 11–29), noted that China’s official statistics reported 83 million manufacturing employees at yearend 2002, but a variety of other available statistics strongly indicated that the actual number was more than 100 million.
2 Banister, "Manufacturing employment in China," noted that China’s official statistics reported 38 million city manufacturing employees at yearend 2002. Data on earnings are not available for 8.2 million manufacturing workers in the cities; of these workers, 2.6 million are self-employed. The Bureau of Labor Statistics does not include the self-employed in its comparative estimates of hourly compensation costs, which relate only to production workers. China's data cover both production and nonproduction workers.
3 TVE’s originally were established as collective economic units run by local governments in rural areas and towns. The purpose of TVE’s was, and still is, to employ small farmers and rural laborers in industrial or service occupations in locations not far from their family homes. This effort allows China’s vast countryside to become modernized without necessitating massive migration from the villages to cities. In the 1980s, and especially from the 1990s to today, TVE’s shifted from public toward private ownership, and many foreign-funded enterprises became classified as TVE’s. Nowadays, in addition to including small local enterprises, the TVE category can include very large factories in industrial parks outside cities, as well as suburban, town, and rural factories. Companies have incentives to have their factories classified as TVE’s because required social insurance payments are low, statistical reporting requirements are minimal, and the companies receive many legal and tax benefits.
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