HOURLY COMPENSATION COSTS FOR ALL EMPLOYEES IN MANUFACTURING 32 COUNTRIES OR AREAS 22 MANUFACTURING INDUSTRIES, 1996-2007 "NACE countries": Austria, Belgium, Czech Republic, Denmark, Finland, Germany, Hungary, Ireland, Italy, the Netherlands, Poland, Portugal, Slovakia, Spain, Sweden, and the United Kingdom. See Technical Notes for further information. National currency units: United States, dollar; Argentina, peso; Brazil, real; Canada, dollar; Mexico, peso; Australia, dollar; Israel, new shekel; Japan, yen; Republic of Korea, won; New Zealand, dollar; Philippines, peso; Singapore, dollar; Taiwan, dollar; Austria, euro; Belgium, euro; Czech Republic, koruna; Denmark, krone; Finland, euro; France, euro; Germany, euro; Hungary, forint; Ireland, euro; Italy, euro; the Netherlands, euro; Norway, kroner; Poland, zloty; Portugal, euro; Slovakia, koruna; Spain, euro; Sweden, krona; Switzerland, franc; United Kingdom, pound. See Technical Notes for further information. Prepared By: U.S. Department of Labor, Bureau of Labor Statistics, Office of Productivity and Technology, August 12, 2009. Technical Notes PAGE 2 Introduction The accompanying tables present hourly compensation costs data for total manufacturing and for component, or sub-manufacturing, industries. The measures for total manufacturing were published in news release USDL 09-0304, "International Comparisons of Hourly Compensation Costs in Manufacturing, 2007," March 26, 2009, available at https://www.bls.gov/news.release/ichcc.toc.htm. Data for total manufacturing for some countries have been updated to reflect revisions subsequent to the news release. Further, the component industry data for some countries have been revised since the previous version of these tables to incorporate updated data. 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 component industry measures are generally less reliable than the total manufacturing data because there are more technical limitations associated with component industry data. See the Data Limitations section below for more information. 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 refer to the value of social contributions incurred by employers in order to secure entitlement to social benefits for their employees; these contributions often provide delayed, future income and benefits to employees. Included are 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. Hourly Compensation Costs consists of: > Hourly Direct Pay >> Pay for Time Worked >>> Basic wages >>> Piece rate >>> Overtime premiums >>> Shift, holiday, or night work premiums. >>> Cost-of-living adjustments >>> Bonuses and premiums paid each pay period >> Other Direct Pay >>> Pay for time not worked (vacations, holidays, and other leave, except sick leave) >>> Seasonal and irregular bonuses >>> Allowances for family events, commuting expenses, etc. >>> The cash value of payments in kind >>> Severance pay (where explicitly not linked to a collective agreement) > Employer Social Insurance Expenditures (both legally required and contractual and private) and Other Labor Taxes PAGE 3 >> Retirement and disability pensions >> Health insurance >> Income guarantee insurance and sick leave >> Life and accident insurance >> Occupational injury and illness compensation >> Unemployment insurance >> Severance pay (where linked to a collective agreement) >> Other social insurance expenditures >> Taxes (or subsidies) on payrolls or employment The BLS definition of hourly compensation costs is not the same as the International Labor Office (ILO) definition of total labor costs. The BLS definition is less inclusive than the ILO definition. Expenditures on the maintenance and repair of facilities related to company-provided services--such as cafeterias, daycare centers, private medical clinics, and recreational facilities--are excluded from the BLS definition because they are overhead costs not directly linked to the level of employment or payroll. Recruitment and vocational training costs and reimbursements of business expenses are also not included in the BLS definition because the concepts used, and thus the measurement of these items, are not consistent across countries. The above labor costs excluded from the BLS definition account for no more than 2 percent of total labor costs in most countries for which the data are available. All employees include production workers, as defined below, as well as all others employed full or part time in an establishment during a specified payroll period. Persons are considered employed if they receive pay for any part of the specified pay period. Temporary employees are included. The self-employed, unpaid family workers, and workers in private households are excluded. 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. 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, from surveys or censuses of manufactures, or from administrative data sources. The surveys used in the BLS series typically cover firms with a minimum of one to ten employees. For most countries, average earnings are adjusted to total compensation using adjustment factors obtained from periodic labor cost surveys or censuses of manufacturers; the adjustment factors are 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 for 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, and statistical series on indirect labor costs. For the United States, the adjustment factors are specially constructed for international PAGE 4 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. 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 used can be found in "Country Notes and Sources" located at https://www.bls.gov/ilc/ichccsources.pdf. Industrial Classifications The hourly compensation measures in these tables are reported according to the North American Industry Classification System (NAICS). NAICS is the common industrial classification used by the United States, Canada, and Mexico. Data are shown for most NAICS 3-digit level industries, selected additional industry combinations, and selected 4-digit industries. The concordance between NAICS and the industry classifications used by other countries is only approximate. Because the requisite data are not available, it is not possible to adjust for all the differences between NAICS and other classification systems. The extent to which these differences affect the comparability of the data varies by industry and by country. In general, most of these differences are minor and do not significantly affect the comparisons; where differences may be more important, they are noted on the appropriate table. With the exceptions of Japan and Taiwan, most of the economies in this report that do not use NAICS use classification systems that are closely based on the International Standard Industrial Classification of all Economic Activities, Revision 3 (ISIC Rev. 3). In addition, the classification systems used by European Union countries are linked to the European Union's official classification system (NACE Rev. 1), which is in turn closely linked to ISIC Rev. 3. Because of this, some exceptions in industry classification noted in the tables may apply to several countries, including most European Union countries. In such cases, a general footnote to the table that states "for NACE countries" is included. When the general footnote also applies to some non-European Union countries, those countries are included in the footnote as well. For the purposes of these tables, "NACE countries" refers to the following countries: Austria, Belgium, Czech Republic, Denmark, Finland, Germany, Hungary, Ireland, Italy, the Netherlands, Poland, Portugal, Slovakia, Spain, Sweden, and the United Kingdom. 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. Differences in industrial classifications among countries can reduce the comparability of component industry measures. In addition, data at the component industry level are subject to greater limitations than at the all manufacturing level. For example, industry data for some items of compensation may not be available for all years and may be estimated using trends in similar industries or in total manufacturing; data for some industries may be based on small sample sizes and therefore may fluctuate more from year to year than data at the total manufacturing level; and PAGE 5 industry-specific events or events at large firms can have a pronounced effect on data for a particular industry. 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 another base 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 some 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.