China's Manufacturing Employment and Compensation Costs: 2002-06: Both Employment and Compensation Costs in China's Manufacturing Sector Increased Rapidly from 2002 to 2006; Employment Increased More Than 10 Percent during Those 4 Years, to 112 Million, While Compensation Costs Increased More Than 40 Percent, to $0.81 per Hour Worked

Article excerpt

In 2006, China passed Mexico to become the United States' second-largest trading partner in manufactured goods, behind only Canada. (1) Because of China's growing importance to the U.S. economy, there has been great interest in statistics about China's manufacturing sector, particularly employment statistics and a comparable compensation costs measure. In response to this interest, the Bureau of Labor Statistics (BLS) sponsored a baseline research project to assess the quality of China's data on manufacturing employment and labor compensation and to develop estimates of hourly compensation costs in China. The data sources and estimation procedures used in that original work have been the basis for updates through 2004 and, in this article, through 2006, when the average hourly compensation costs of China's 112 million manufacturing employees were $0.81. (2)

The first section of this article reviews the available data sources for China's manufacturing sector. The second section then presents the trend in that nation's manufacturing employment from 1978 to 2006. Next, the article updates previous estimates of China's manufacturing earnings and compensation costs, including the effect of the new floating exchange rate. A brief comparison of the results from China's First National Economic Census with those from the annual data sources used herein concludes the article.

Manufacturing sector data sources

The concepts and coverage of China's published statistics on manufacturing employment and wages often do not follow international standards and can be difficult to understand. Some of the difficulty is related to the fact that not all of the data are collected by one agency: data from urban areas are the responsibility of the Ministry of Labor and Social Security, whereas data for other areas--in the form of town and village enterprise (TVE) data (3)--are compiled and reported by the Ministry of Agriculture. This system of data collection is based on an annual reporting system from work units that originally reflected a planned socialist or Marxist economy and emphasized urban data over rural data. Today, analysts have comparatively detailed yearly figures on employment and earnings in urban manufacturing units, and these figures are published in easily accessible statistical volumes.

In contrast, minimal labor-related statistics are published about China's large network of factories and small manufacturing units besides urban units. The fact remains that the majority of China's manufacturing workers are employed outside of urban enterprises, yet each year only two relevant numbers are published about them: the total number of manufacturing employees in China who work in establishments and groups besides urban manufacturing units and the total annual wage bill for those manufacturing workers.

Estimates of total employment and average hourly compensation costs for China's manufacturing sector are constructed by combining the ample urban data with the less plentiful compiled and published figures on TVE manufacturing. Important gaps in the TVE data are filled by estimating nonwage components of labor compensation as well as hours worked per year. These national estimates for China cannot be considered as robust as the manufacturing statistics for most developed economies, but the accumulated evidence to date, including China's First National Economic Census (discussed later in the article), supports the general validity of the BLS annual calculations on China's manufacturing employment and labor compensation.


Yearend manufacturing employment, 1978-2006

Total yearend manufacturing employment in China increased from 1978 to the mid-1990s, peaking at 126.08 million workers in 1996. (See chart 1 and table 1. (4)) In the late 1990s, privatization in China's manufacturing establishments and intense global competition brought increases in labor productivity, accompanied by a drop in manufacturing employment in urban China and a slight decline in TVE manufacturing employment as firms shed excess workers from the era of State-owned enterprises in order to become more cost efficient. …