Competitiveness indicators for
manufacturing
(charts 3.1 - 3.7 and
5.9)
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Section 3 focuses on several key
labor-related indicators of competitiveness in world markets for goods:
the level and trends in manufacturing hourly compensation costs, trends
in productivity and unit labor costs, and manufacturing output as a
percent of world manufacturing. The manufacturing sector provides the
best data for such comparisons, and the BLS indicators presented in
charts 3.1-3.6
have been adjusted to a common conceptual framework to facilitate
comparisons. Nevertheless, it should be noted that these indicators
allow only for a partial assessment of international competitiveness of
economies. The aggregate (all manufacturing) nature of the indicators
may mask important variations in competitiveness of manufacturing
sub-sectors. In addition, competitiveness relationships in
manufacturing may not be the same as the relationships in services, a
growing sector for trade flows. Although competitiveness is heavily
dependent on labor costs, there are many other factors that also
influence competitiveness, including the quality of the product, the
timeliness of its delivery, after-sales service, and the flexibility
needed to respond to changes in customers' requirements. Note that the
hourly compensation costs indicators in charts
3.1-3.3 show levels and trends, whereas
the productivity and unit labor costs indicators in charts
3.4-3.6 are
limited to trend comparisons.
Hourly compensation costs for production workers in manufacturing
(charts 3.1-3.3)
These charts present data on comparative hourly compensation costs for
manufacturing production workers in order to assess international differences in
employer labor costs. Comparisons based on the more readily available average
earnings statistics published by many countries can be very misleading—national
definitions of average earnings differ considerably, average earnings do not
include all items of labor compensation, and the omitted items of compensation
frequently represent a large proportion of total compensation.
The compensation measures are computed in national currency units and are
converted into U.S. dollars at prevailing commercial market currency exchange
rates. The foreign currency exchange rates used in the calculations are the
average daily exchange rates for the reference period. They are appropriate
measures for comparing levels of employer labor costs. They do not indicate
relative living standards of workers or the purchasing power of their income.
Hourly compensation costs include (1) hourly direct pay and (2)
employer social insurance expenditures and other labor taxes. Hourly direct
pay includes all payments made directly to the worker, before payroll
deductions of any kind, consisting of (a) pay for time worked and (b) other
direct pay. Pay for time worked includes basic time and piece rates plus
overtime premiums, shift differentials, other premiums and bonuses paid
regularly each pay period, and cost-of-living adjustments. Other direct pay
includes pay for time not worked (vacation, holidays, and other leave, except
sick leave), seasonal or irregular bonuses and other special payments, selected
social allowances, and the cost of payments in kind. Social insurance
expenditures and other labor taxes include (c) employer expenditures for
legally required insurance programs and contractual and private benefit plans
and (d) other labor taxes. Social insurance expenditures include employer
expenditures for retirement and disability pensions, health insurance, income
guarantee insurance and sick leave, life and accident insurance, occupational
injury and illness compensation, unemployment insurance, and family
allowances. Other labor taxes includes taxes on payrolls or employment (or
reductions to reflect subsidies), even if they do not finance programs that
directly benefit workers, because such taxes are regarded as labor costs.
The BLS definition of hourly compensation costs is not the same as the ILO
definition of total labor costs. Hourly compensation costs do not include all
items of labor costs. The costs of recruitment, employee training, and plant
facilities and services—such as cafeterias and medical clinics—are not included
because data are not available for most countries. The labor costs not included
account for no more than 4 percent of total labor costs in any country for which
the data are available.
Production workers generally include those employees who are engaged
in fabricating, assembly, and related activities; material handling,
warehousing, and shipping; maintenance and repair; janitorial and guard
services; auxiliary production (for example, power plants); and other services
closely related to the above activities. Working supervisors are generally
included; apprentices and other trainees are generally excluded.
Total compensation is computed by adjusting each country's average earnings
series for items of direct pay not included in earnings and for employer
expenditures for legally required insurance, contractual and private benefit
plans, and other labor taxes. For the United States and other countries that
measure earnings on an hours-paid basis, the figures are also adjusted in order
to approximate compensation per hour worked. Earnings statistics are obtained
from surveys of employment, hours, and earnings or from surveys or censuses of
manufactures.
Adjustment factors are obtained from periodic labor cost surveys and
interpolated or projected to non-survey years on the basis of other information
for most countries. The information used includes tabulations of employer
social security contribution rates provided by the International Social Security
Association, information on contractual and legislated fringe benefit changes
from ILO and national labor bulletins, and statistical series on indirect labor
costs. For other countries, adjustment factors are obtained from surveys or
censuses of manufactures or from reports on fringe-benefit systems and social
security. For the United States, the adjustment factors are special
calculations for international comparisons based on data from several surveys.
The statistics are also adjusted, where necessary, to account for major
differences in worker coverage; differences in industrial classification
systems; and changes over time in survey coverage, sample benchmarks, and
frequency of surveys. Nevertheless, some differences in industrial coverage
remain, and in many countries other than the United States, the data exclude
very small establishments (less than 5 employees in Japan and less than 10
employees in most other countries). For the United States, the methods used, as
well as the results, differ somewhat from those of other BLS series on U.S.
compensation costs.
Hourly compensation costs are converted to U.S. dollars using the average
daily exchange rate for the reference period. The exchange rates used are
prevailing commercial market exchange rates as published by either the U.S.
Federal Reserve Board or the International Monetary Fund.
The hourly compensation figures in U.S. dollars shown in the tables provide
comparative measures of employer labor costs; they do not provide inter-country
comparisons of the purchasing power of worker incomes. Prices of goods and
services vary greatly among countries, and the commercial market exchange rates
used to compare employer labor costs do not reliably indicate relative
differences in prices. Purchasing Power Parities (defined previously in the
Gross Domestic Product section) must be used for meaningful international
comparisons of the relative purchasing power of worker incomes.
Total compensation converted to U.S. dollars at Purchasing Power Parities
would provide one measure for comparing relative real levels of labor income.
It should be noted, however, that total compensation includes employer payments
to funds for the benefit of workers in addition to payments made directly to
workers. Payments into these funds provide either deferred income (for example,
payments to retirement funds), a type of insurance (for example, payments to
unemployment or health benefit funds), or current social benefits (for example,
family allowances), and the relationship between employer payments and current
or future worker benefits is indirect. On the other hand, excluding these
payments would understate the total value of income derived from work because
they substitute for worker savings or self-insurance to cover retirement,
medical costs, etc.
Total compensation, because it takes account of employer payments into funds
for the benefit of workers, is a broader income concept than either total direct
earnings or direct spendable earnings. An even broader concept would take
account of all social benefits available to workers, including those financed
out of general revenues as well as those financed through employment or payroll
taxes.
Source: BLS, “International Comparisons of Hourly Compensation Costs
of Production Workers in Manufacturing, 2005,” November 30, 2006, Department of
Labor News Release USDL 06-2020, <http://www.bls.gov/fls/>.
Manufacturing productivity and unit labor costs
(charts 3.4-3.6)
The productivity estimates refer to labor productivity, defined as
real output per hour worked. It is based on the manufacturing output produced
in each country and the total labor input in the form of hours worked.
Output is defined as the real (deflated) GDP produced in the manufacturing
sector of the economy. GDP has been defined previously (see Gross Domestic
Product section). The output data are published as part of each country's
national accounts.
Hours worked in manufacturing include the hours of all persons engaged
in the manufacturing process, including the self-employed. For some countries,
the data on the number of hours worked in manufacturing are also published with
the national accounts. For other countries, BLS constructs its own estimates of
aggregate hours worked, multiplying employment figures published with the
national accounts by estimates of average annual hours worked.
Manufacturing unit labor costs are defined as the cost of labor
compensation per unit of output. Because labor costs are frequently a major
factor in total production costs, changes in unit labor costs affect the prices
of manufactured products.
Labor compensation includes employer expenditures for legally required
insurance programs and contractual and private benefit plans, in addition to all
payments made in cash or in kind directly to employees. Data on labor
compensation are usually taken from the countries' national accounts. When data
for the self-employed are not available, total compensation is estimated by
assuming the same hourly compensation for self-employed and employees.
Changes in a country's unit labor costs, expressed in U.S. dollars, are
estimated by combining changes in the unit labor cost expressed in each nation's
currency with changes in the exchange rate of the country's currency against the
U.S. dollar.
Source: BLS, "International Comparisons of Manufacturing Productivity
and Unit Labor Cost Trends 2006," September 27, 2007, Department of Labor News
Release USDL 07-1456, <http://www.bls.gov/fls/>.
Manufacturing output as a percent of world manufacturing output
(charts 3.7 and 5.9)
Manufacturing output is defined as the value added in the
manufacturing sector of each country.
Each country's manufacturing value added in 2006, expressed in U.S. dollars,
is divided by world manufacturing value added. The value added series are
converted to U.S. dollars by applying the corresponding 2006 exchange rates, as
reported by the International Monetary Fund (IMF). Reported rates are annual
averages of the exchange rates communicated to the IMF by the monetary authority
of each member country.
While exchange rates are the most appropriate conversion method, one must
keep in mind that they are volatile by nature and can change suddenly and
significantly, leading to sharp realignments of the comparative levels shown in
the charts. For example, if a country's currency is relatively "undervalued,"
the share of world manufacturing output shown on the chart for that country will
be relatively low. If the currency were to strengthen, the country's share (in
U.S. dollars) would rise, even if its manufacturing output (in local currency
units) remained unchanged.
Source: United Nations, National Accounts Main Aggregates Database,
<http://unstats.un.org/>.
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