June 17, 2013    Volume 20, No. 8

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It Will Be A Long Time Before Chinese Manufacturing Wages Catch Up With American's: China's Hourly Manufacturing Worker Compensation Cost: $1.74

By Richard A. McCormack

Despite claims that China's manufacturing labor costs are quickly approaching levels of those in the United States--they are not, and they are not even close, according to research recently completed by the now defunct International Labor Comparisons program at the U.S. Department of Labor. Manufacturing wages and benefits are increasing in China, but from such a low base that they are nowhere near those of the United States.

Hourly compensation costs in China nearly tripled between 2002 to 2009, "however, costs have increased from about 2 percent of the U.S. level in 2002 to 5 percent in 2009," according to the ILC program, which the Obama administration tried to kill twice before succeeding this spring, with the budget "sequester" providing it the opportunity to do so.

But compensation costs for manufacturing workers in rural areas of China are far lower than for urban workers--almost two-thirds less at only $1.15 per hour, versus $2.85 per hour for urban manufacturing workers. Sixty-five percent of China's manufacturing employees work in rural areas.

The Chinese average is only $1.74 per hour for all manufacturing firms in 2009 (up from $1.59 in 2008, $1.21 in 2007 and $0.95 in 2006). By comparison, the average total compensation cost for a U.S. manufacturing worker in 2009 was $34.19--$26.00 of which was direct pay (wages).

"Average hourly compensation in China manufacturing more than doubled in nominal Chinese RMB from 2002 to 2009, and nearly tripled in nominal U.S. dollars, in part because of the changing RMB-to-dollar exchange rate," says the study. Labor shortages, increased price inflation and pressure for better benefits and social insurance all drove the increase in Chinese manufacturing compensation costs.

In order for Chinese wages to get close to those of American workers, they will need to grow at an exponential rate. Even if they were to quadruple from 2009's level of $1.74 per hour, they would still only amount to $7.00 per hour.

The analysis, titled "China's Manufacturing Employment and Hourly Compensation 2002 - 2009," by Judith Banister, was released only after Manufacturing & Technology News Editor Richard McCormack submitted a Freedom of Information Act request to the U.S. Department of Labor. The study had been scheduled for release in early 2013, but had disappeared. Another update with data through 2011 is expected to be published shortly in the Bureau of Labor Statistics' Monthly Labor Review. Without the ILC program, the United States soon will have no objective measure of foreign competitors' wages.

The current report notes that China's average hourly manufacturing worker compensation costs "remained far below those of many of its East Asian neighbors such as Japan ($30.03), the Republic of Korea ($15.06) and Singapore ($17.54), but were roughly on par with those of the Philippines ($1.70)."

The average Chinese total compensation cost of $1.74 per hour in 2009 includes all the expenses an employer covers for a manufacturing worker: direct wages, all social insurance and employee benefits, pension payments, basic medical insurance, unemployment insurance, work injury insurance, sick leave, maternity leave, housing funds, collective welfare benefits, employee hardship grants, rent and transportation subsidies, family allowances and winter heating costs.

The research also found that there has not been a decrease in the number of manufacturing workers in China, a claim that is repeated by many U.S. economists as a means to rationalize the decline of American manufacturing employment.

Instead, manufacturing employment was growing robustly in China between 2002 and 2009--from 85.9 million to 99 million, an increase of 13.1 million over eight years, including the deep recession year of 2009. The increase alone is more than the total number of manufacturing workers in the United States. The number of Chinese manufacturing workers was almost an order-of-magnitude higher than the U.S. total of 11.5 million manufacturing workers in 2009.

The total number of manufacturing workers in China is likely far higher than the 99 million figure, since China's government decided in 2006 to not count self-employed manufacturing workers--or those who worked in household, neighborhood or other small-manufacturing groupings in rural areas. The decision to stop counting such workers resulted in a one-time decline of 16 million manufacturing workers in China's manufacturing employment dataset in 2007. These workers still exist but are no longer being counted, according to an earlier report on the subject prepared by Banister. Millions of Chinese have jobs both in agriculture and in manufacturing, and during peak planting and harvest seasons, people temporarily leave their manufacturing jobs to work the fields. The study is located at http://www.bls.gov/fls/china_method.htm.

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