December 3, 2004


Just How Cheap Is Chinese Labor?: Reliable data don't exist, but the U.S. government is doing some digging, and here's a preview of the findings (Business Week, 12/02/04)

Every year the U.S. Bureau of Labor Statistics compares manufacturing labor costs in the U.S. with those of about 30 global rivals. Its latest report, on Nov. 18, showed that average hourly compensation of foreign factory workers rose 12% in 2003, measured in dollars, compared with 4% in the U.S.

But these statistics have a glaring omission: China. The BLS can't compare Chinese and U.S. factory labor costs because reliable statistics from the Asian giant don't exist. That makes it hard to assess China's competitive strength.

Now, the info deficit is starting to be remedied. This past summer, the BLS hired a Beijing-based American consultant, Judith Banister, to dig through China's mountain of incomplete and sometimes unreliable statistics. The goal: to calculate average manufacturing compensation in China in 2002 -- the last year for which data was available. BusinessWeek was given a preview of her findings, which she will present to the BLS later this month.

Her estimate? The cost of Chinese factory labor is a paltry 64 cents an hour. Although that figure is rough, since it's pieced together from sketchy statistics, it's still the most thorough estimate ever compiled. It includes both wages and employer contributions for benefits and social insurance. And it covers not just city factory workers, who get the most attention, but the more numerous rural and suburban factory workers as well. For comparison, hourly factory compensation in the U.S. in 2002 was $21.11, and an average of $14.22 in the 30 foreign countries covered by the existing BLS report.

Which has driven and will contiunue to drive an epoch of deflation.

Posted by Orrin Judd at December 3, 2004 9:34 AM

How much of the Chinese labor force is basically enslaved by the PRA? Especially in the countryside?

Posted by: ratbert at December 3, 2004 9:55 AM

It is not the compensation that matters but their productivity per dollar expended on their compensation.

Posted by: Bart at December 3, 2004 10:08 AM

Modern industrial jobs are unskilled--that's why they've always been so easily transportable.

Posted by: oj at December 3, 2004 10:21 AM

I wonder what will happen to that number when the Chinese currency (yuan?) is allowed to float.

Posted by: at December 3, 2004 10:50 AM

Bart is right, but this productivity is not always driven by how "skilled" or "educated" the worker is. To a significant extent, how productive the worker is depends on how much (and how good) capital has been put to work in support of labor. Here is where the "China factor" has become meaningful. They have been able to put together a "business model" where labor costs are Third World like, but the cost of capital is almost OECD! (Check out deafult swap rates for China. Not much higher than many OECD countries.) And of course, capital has flowed there in abundance.

Posted by: Moe from NC at December 3, 2004 10:52 AM

If the 12% and 4% rates were maintained (unlikely), that gap would close entirely in another 5 years.

Posted by: Mike Earl at December 3, 2004 1:11 PM

Been in a modern US factory recently, OJ?

Posted by: David Cohen at December 3, 2004 2:05 PM

They're all overseas--timezone violation.

Posted by: oj at December 3, 2004 2:11 PM

Come visit sometime, I'd be glad to give you a tour. Of course, it's a state-line violation.

Posted by: David Cohen at December 4, 2004 11:00 PM