Technical Notes
-9- TECHNICAL NOTES The tables in this news release present international comparisons of hourly compensation costs for production workers and all employees in manufacturing in selected countries or areas. The total compensation measures are prepared by the Bureau of Labor Statistics in order to assess international differences in employer labor costs. For several reasons, the comparisons based on the more readily available average earnings statistics published by many countries can be 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 in this news release are based on statistics available to BLS as of September 2007. These measures may be revised as data are collected to update compensation measures for component industries. Data for component industries are available at http://www.bls.gov/fls/flshcindnaics.htm. For the first time, this news release contains data for all employees in addition to the series for production workers. The production worker series starts in 1975 and the all employee series in 1996. In addition, production worker and all employee data are introduced for the Philippines and all employee data are introduced for Argentina and Slovakia. Definitions 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 pay for time worked and other direct pay. Social insurance expenditures and other labor taxes include employer expenditures for legally required insurance programs, contractual and private benefit plans, and other labor taxes. Other labor taxes refer to 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 International Labor Office (ILO) definition of total labor costs. BLS 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 many countries. The labor costs not included account for no more than 2 percent of total labor costs in most countries 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. All employees include production workers as well as all others employed full or part time in an establishment during a specified payroll period. Temporary employees are included. Persons are considered employed if they receive pay for any part of the specified pay period. The self-employed, unpaid family workers, and workers in private households are also excluded. -10- Hourly Compensation Costs consists of: * Hourly Direct Pay - Pay for Time Worked + Basic wages + Piece rate + Overtime premiums + Shift differentials + Bonuses and premiums paid regularly + Cost-of-living adjustments - Other Direct Pay + Pay for time not worked (vacations, holidays, and other leave, except sick leave) + Seasonal and irregular bonuses + Social allowances + Pay in kind * Employer Social Insurance Expenditures (both legally required and contractual and private) and Other Labor Taxes - Retirement and disability pensions - Health insurance - Income guarantee insurance and sick leave - Life and accident insurance - Occupational injury and illness compensation - Unemployment insurance - Family allowances - Other social insurance expenditures - Taxes (or subsidies) on payrolls or employment Data on Hourly Direct Pay, Pay for Time Worked, and Social Insurance Expenditures can be found in the supplementary tables to this news release at http://www.bls.gov/fls/hcompsupptabtoc.htm. Methods 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 and subsidies. 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. These surveys typically cover firms with a minimum of one to ten employees. For most countries, adjustment factors are obtained from periodic labor cost surveys or censuses of manufacturers and interpolated or projected to non-survey years on the basis of other information. Generally, these surveys cover all employees in the establishment; survey data are used in both production worker and all employee series. Other 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 labor bulletins, and statistical series on indirect labor costs. For the United States, the adjustment factors are specially constructed for international comparisons using data from several surveys. The methods used, as well as the results, differ somewhat from those for other BLS series on U.S. compensation costs. -11- 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, or frequency of surveys. Nevertheless, some differences remain. Exceptions to these methods, as well as data sources can be found in "Country Notes and Sources" located at www.bls.gov/fls. Exchange Rates and Currencies 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. On January 1, 1999, several European countries joined the European Monetary Union (EMU): Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. Greece joined on January 1, 2001. There are currently other member countries of the EMU that are not covered in this report. Currencies of EMU members were established at fixed conversion rates to the euro, the official currency of the EMU. For the EMU countries data on hourly compensation costs are reported in euros and exchange rates for the EMU countries relate to euros per dollar for 1999 to the present; for the years 1975-1998, hourly compensation data are published in the old national currencies used in each country before the adoption of the euro. In order to include data on trends in national currency compensation costs and exchange rates for the entire time period, BLS converts national currency for 1975-1998 to a "euro" basis for calculation. The conversions for all years 1975-1998 are made using the official fixed conversion rates for 1999, with the exception of Greece which uses the official fixed conversion rate for 2001. Industrial classification The hourly compensation measures relate to manufacturing on a North American Industry Classification System (NAICS) basis. NAICS is the common industrial classification used by the United States, Canada, and Mexico. The NAICS definition of manufacturing differs somewhat from the definition of manufacturing used in other countries. Some industries that are not included in the NAICS definition of manufacturing, such as publishing of books and sound recordings, some repair and maintenance of equipment, and some business support services, are included in the definition of manufacturing in most other industrial classifications. In contrast, other industries are included in the NAICS definition of manufacturing but not in the definition of manufacturing for most foreign economies, such as some processing of foods, some packaging, and retail sales of bakery products from the production facility. Most of the differences other than the treatment of publishing are very minor and do not have a noticeable impact on overall manufacturing averages. BLS makes adjustments to remove publishing from manufacturing for the foreign economies in which it is classified as a part of manufacturing, except for Sri Lanka, for which the data necessary to remove publishing are not available. For the countries for which adjustments are made, the effect of publishing on manufacturing wages is estimated and removed using data from national sources or the United Nations Industrial Statistics Database, the International Labor Office (ILO), and other sources. Except for Hong Kong, the effect of removing publishing from manufacturing does not change the level of hourly compensation costs for any economy more than 1.5 percent, and the -12- change is less than one percent in most countries. For Hong Kong, the effect of the adjustments is 2 to 4 percent in several years. Trade-weighted measures The trade weights used to compute the average compensation cost measures for selected economic groups are weights based on the relative dollar value of U.S. trade in manufactured commodities (exports plus imports) with each country or area in 2004. (See the following table.) The trade data are compiled by the U.S. Census Bureau. The only countries not covered in the trade-weighted measures of this report that accounted for as much as one percent of such trade in 2004 are China, India, Malaysia, and Thailand. Hourly compensation costs data for China are included in this report in a special text box. In addition, an article on manufacturing compensation costs in China is available on the BLS website at http://www.bls.gov/opub/mlr/2006/11/art4full.pdf. The compensation data on China are not directly comparable with the data for other countries found in this news release. The countries included in the Organization for Economic Cooperation and Development (OECD) trade-weighted measure are Canada, Mexico, Australia, Japan, the Republic of Korea, New Zealand, and all European countries covered in the series. The group labeled "Euro Area" consists of the 12 European Union member countries in this release that have adopted the euro as the common currency as of January 1, 2001 (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain). The group labeled "Europe" consists of the members of the Euro Area and the Czech Republic, Denmark, Hungary, Norway, Poland, Slovakia, Sweden, Switzerland, and the United Kingdom. The group labeled "Asian NIEs" consists of the four newly industrialized economies of Hong Kong SAR, the Republic of Korea, Singapore, and Taiwan. The trade-weighted measures relate to all the countries or areas covered in the series. If data for the most recent year(s) are missing for a country, trade-weighted estimates are computed using the average percent change of all the other economies in the series to estimate the missing year(s). An economy is included in trade-weight series beginning with the start year of that economy's data series. The trade-weighted average rates of change are computed as the trade- weighted arithmetic average of the rates of change for the individual countries or areas; the trade-weighted average hourly compensation costs are computed as the trade-weighted arithmetic average of cost levels for the individual countries or areas. Rates of change derived from the trade- weighted average hourly compensation cost levels need not be the same as the trade-weighted average rates of change. -13- Share of total U.S. imports and exports of manufactured products in 2004 (in percent) Country or area 2004 Country or area 2004 and economic trade and economic trade group share group share Argentina 0.3 Germany 5.6 Brazil 1.7 Greece 0.1 Canada 20.0 Hungary 0.2 Mexico 12.5 Ireland 1.9 Italy 2.0 Australia 1.1 Luxembourg 0.1 Hong Kong SAR(1) 1.3 Netherlands 1.8 Israel 1.2 Norway 0.2 Japan 9.4 Poland 0.1 Korea, Republic of 3.7 Portugal 0.2 New Zealand 0.2 Slovakia 0.1 Philippines 0.8 Spain 0.7 Singapore 1.8 Sweden 0.8 Sri Lanka 0.1 Switzerland 1.0 Taiwan 2.9 United Kingdom 3.8 Austria 0.4 Economic Groups (2) Belgium 1.5 33 foreign economies 75.5 Czech Republic 0.1 OECD(3) 66.2 Denmark 0.3 Europe 22.4 Finland 0.3 Euro Area (4) 16.1 France 2.7 Asian NIEs 9.1 (1) Hong Kong Special Administrative Region of China. (2) Trade shares for Economic Groups refer to the country coverage of the production worker series. The relevant trade shares for the all employee series are: 31 Foreign Economies, 74.4; OECD, 66.1; Europe, 22.3; Euro Area, 15.9; Asian NIES, 7.9. (3) Organization for Economic Cooperation and Development. (4) Euro Area consists of the European Union member countries in this release that have adopted the euro as the common currency as of January 1, 2001. Data limitations Because compensation is partly estimated, the statistics should not be considered as precise measures of comparative compensation costs. In addition, the figures are subject to revision as the results of new labor cost surveys or other data used to estimate compensation costs become available. The comparative level figures in this report are averages for all manufacturing industries and are not necessarily representative of all component industries. In the United States and some other countries, such as -14- Mexico and Taiwan, differentials in hourly compensation cost levels by industry are fairly wide. Labor costs versus labor income 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, that is, the number of foreign currency units required to buy goods and services equivalent to what can be purchased with one unit of U.S. or other base-country currency 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. (For a few countries, the compensation measures also include taxes or subsidies on payrolls or employment even if they do not finance programs which directly benefit 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. -15- International Comparison of Hourly Compensation Costs in Manufacturing, 2006 List of Tables Page 16 Table 1. PRODUCTION WORKERS: Indexes of hourly compensation costs in manufacturing, 34 countries or areas and selected economic groups, selected years, 1975-2006 Page 17 Table 2. PRODUCTION WORKERS: Hourly compensation costs in U.S. dollars in manufacturing, 34 countries or areas and selected economic groups, selected years, 1975-2006 Page 18 Table 3. PRODUCTION WORKERS: Annual percent change in hourly compensation costs in U.S. dollars in manufacturing, 34 countries or areas and selected economic groups, selected years, 1975-2006 Page 19 Table 4. PRODUCTION WORKERS: Annual percent change in hourly compensation costs in national currency in manufacturing, 34 countries or areas and selected economic groups, selected years, 1975-2006 Page 20 Table 5. PRODUCTION WORKERS: Annual percent change in exchange rates (U.S. dollars per national currency unit), 34 countries or areas and selected economic groups, selected years, 1975-2006 Page 21 Table 6. PRODUCTION WORKERS: Hourly compensation costs in national currency in manufacturing and exchange rates, 34 countries or areas, 2006 Page 22 Table 7. ALL EMPLOYEES: Indexes of hourly compensation costs in manufacturing, 32 countries or areas and selected economic groups, selected years, 1996-2006 Page 23 Table 8. ALL EMPLOYEES: Hourly compensation costs in U.S. dollars in manufacturing, 32 countries or areas and selected economic groups, selected years, 1996-2006 Page 24 Table 9. ALL EMPLOYEES: Annual percent change in hourly compensation costs in U.S. dollars in manufacturing, 32 countries or areas and selected economic groups, selected years, 1996-2006 Page 25 Table 10. ALL EMPLOYEES: Annual percent change in hourly compensation costs in national currency in manufacturing, 32 countries or areas and selected economic groups, selected years, 1996-2006 Page 26 Table 11. ALL EMPLOYEES: Annual percent change in exchange rates (U.S. dollars per national currency unit), 32 countries or areas and selected economic groups, selected years, 1996-2006 Page 27 Table 12. ALL EMPLOYEES: Hourly compensation costs in national currency in manufacturing and exchange rates, 32 countries or areas, 2006
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Last Modified Date: January 25, 2008