Just How Cheap is Chinese Labor?

Reliable data don't exist, but the U.S. government is doing some sleuthing

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.

How Banister came up with her estimate is a tale of patient data sleuthing. Since the BLS wanted to be able to replicate her numbers in the future, she relied solely on official, public data. So the Stanford University-educated demographer and former Census Bureau staffer started with China's Labor Statistical Yearbook. But it covers only 30 million factory workers, all in cities. And it covers wages only, not benefits and social insurance. To fill in the blanks, she had to unearth such hard-to-find data as Agriculture Ministry stats on rural factories. She and an assistant found crucial figures on social insurance contributions only by doggedly scanning hundreds of volumes in the bookstore of the Labor & Social Security Ministry.


Banister concluded China has about 38 million city manufacturing workers. The 30 million on whom she found data earn an average $1.06 an hour. Another roughly 71 million suburban and rural manufacturing workers earn an average 45 cents an hour, for a blended 64 cents. In the current BLS survey, Mexico's $2.48 hourly compensation is the lowest.

Because China's living costs are low, that 64 cents buys as much as $2.96 in the U.S. Banister estimates inflation-adjusted pay in cities doubled from 1990 to 2002. (She thinks it rose outside cities, too, but won't guess how much.) She figures that between 1995 and 2002, factory jobs fell by at least 11 million in cities as state-owned enterprises shed workers, and rose some 5 million outside cities.

Western companies shouldn't waltz into China expecting to pay 64 cents an hour. They usually locate in cities, where wages are higher, and hire skilled workers who earn more, says R. Mark Mechem, an adviser at the U.S.-China Business Council. Plus, Banister's figure for 2002 misses recent pay hikes. The BLS plans to scrutinize Banister's results over the next year. Before it includes China in its survey, the Chinese need to improve their counting. The Labor Ministry has begun a trial workforce survey based on random sampling, and may soon release results. Meanwhile, the BLS project is a start. Getting a grip on China's labor costs is vital. You can't run a modern economy without good data.

By Peter Coy in New York

    Before it's here, it's on the Bloomberg Terminal.