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TECHNICAL NOTES
The tables in this news release present international comparisons of
hourly compensation costs for all employees and 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. 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 January 2009. 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.
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.
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, daycare centers, 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.
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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
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/ilc/hcaesupptabtoc.htm for all employees and
http://www.bls.gov/ilc/hcpwsupptabtoc.htm for production workers.
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
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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.
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
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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.
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. 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 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.
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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 31 foreign economies 67.3
Belgium 1.4 OECD(3) 59.6
Czech Republic 0.1 Europe 21.0
Denmark 0.3 Euro Area (4) 14.9
Finland 0.3 Eastern Europe 0.5
France 2.2 East Asia ex-Japan 7.3
Germany 4.9
(1) Hong Kong Special Administrative Region of China.
(2) Trade shares for Economic Groups refer to the country coverage of the
all employees series. The relevant trade shares for the production worker
series are: 33 Foreign Economies, 68.1; OECD, 59.8; Europe, 21.1; Euro Area,
15.0; Eastern Europe, 0.5; East Asia ex-Japan, 8.2.
(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.
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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.
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.
