International Comparisons of Hourly Compensation Costs in Manufacturing, 1975-2007 PRODUCTION WORKER SUPPLEMENTARY TABLES March 26, 2009 U.S. Department of Labor Bureau of Labor Statistics Office of Productivity and Technology March 2009 SUPPLEMENTARY TABLES SECTION AND TABLE PAGE INTRODUCTION 1 Definitions 1 Methods 2 Exchange Rates and Currencies 3 Industrial Classification 4 Trade-weighted measures 4 Data limitations 6 Labor costs versus labor income 7 COMPARATIVE LEVELS Table 1. Indexes of hourly compensation costs 8 Table 2. Hourly compensation costs in U.S. dollars 11 Table 3. Hourly compensation costs in U.S. dollars, index 2000=100 14 Table 4. Hourly compensation costs in national currency 17 Table 5. Hourly compensation costs in national currency, index 2000=100 20 Table 6. Indexes of hourly direct pay 23 Table 7. Hourly direct pay in U.S. dollars 26 Table 8. Hourly direct pay in national currency 29 Table 9. Indexes of pay for time worked 32 Table 10. Pay for time worked in U.S. dollars 35 Table 11. Pay for time worked in national currency 38 STRUCTURE OF COMPENSATION Table 12. Total direct pay as percent of total hourly compensation costs 41 Table 13. Pay for time worked as percent of total hourly compensation costs 44 Table 14. Other direct pay as a percent of hourly compensation costs 47 Table 15. Social insurance expenditures and other labor taxes as a percent of hourly compensation costs 50 EXCHANGE RATES Table 16. Exchange rates 53 -1- INTRODUCTION The accompanying tables present international comparisons of hourly compensation costs, hourly direct pay, and pay for time worked for production workers 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. 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 total direct pay and pay for time worked measures are prepared to provide a comparable basis for analyzing the main components of total compensation. 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 refers 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 >> 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 -2- 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. Expenditures on the maintenance and repair of facilities related to company-provided services—such as cafeterias, daycares, private medical clinics, and recreational facilities— are excluded 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 not included because the concepts used, and thus the measurement of these items, are not consistent across countries. The above labor costs items 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 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. -3- 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 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 www.bls.gov/ilc. 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 and Slovakia joined on January 1, 2009. 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, with the exception of Greece, data on hourly compensation costs are published in the old national currencies used in each country before the adoption of the euro from 1992-1998 and in euros from 1999-2006. Data for Greece are reported in drachmas from 1992-2000 and in euros from 2001-2006. Slovakia will be reported in euros beginning with 2009 data. -4- 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, Luxembourg, Slovakia, and Switzerland, 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. 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 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 2007. (See the following table.) The trade data are compiled by the U.S. Census Bureau. -5- Share of total U.S. imports and exports of manufactured products in 2007 (in percent) Country or area 2007 Country or area 2007 and economic trade and economic trade group share group share Argentina 0.3 Greece 0.1 Brazil 1.7 Hungary 0.1 Canada 16.8 Ireland 1.4 Mexico 10.6 Italy 1.6 Luxembourg 0.1 Australia 0.9 Netherlands 1.7 Hong Kong SAR(1) 1.0 Norway 0.3 Israel 1.2 Poland 0.2 Japan 7.4 Portugal 0.2 Korea, Republic of 2.8 Slovakia 0.1 New Zealand 0.2 Spain 0.6 Philippines 0.6 Sweden 0.7 Singapore 1.6 Switzerland 1.0 Sri Lanka 0.1 United Kingdom 3.4 Taiwan 2.2 Economic Groups (2) Austria 0.4 33 foreign economies 68.1 Belgium 1.4 OECD(3) 59.8 Czech Republic 0.1 Europe 21.1 Denmark 0.3 Euro Area (4) 15.0 Finland 0.3 Eastern Europe 0.5 France 2.2 East Asia ex-Japan 8.2 Germany 4.9 (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 employees series are: 31 Foreign Economies, 67.3; OECD, 59.6; Europe, 21.0; Euro Area, 14.9; Eastern Europe, 0.5; East Asia ex-Japan, 7.3. (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, 2009. 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 2007. (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 2007 are China, India, Malaysia, and Thailand. -6- 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 13 European Union member countries in this release that have adopted the euro as the common currency as of January 1, 2009 (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovakia, and Spain). The group labeled "Europe" consists of the members of the Euro Area and the Czech Republic, Denmark, Hungary, Norway, Poland, Sweden, Switzerland, and the United Kingdom. The group labeled “Eastern Europe” consists of the Czech Republic, Hungary, Poland, and Slovakia. The group labeled "East Asia ex-Japan" consists of Hong Kong SAR, the Republic of Korea, the Philippines, 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. 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 Mexico and Taiwan, differentials in hourly compensation cost levels by industry are fairly wide. -7- 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.