International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing, 1997

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INTERNATIONAL COMPARISONS OF HOURLY COMPENSATION COSTS FOR PRODUCTION WORKERS IN MANUFACTURING, 1997

The gap in hourly compensation costs for manufacturing production workers between the United States and the average for 28 foreign economies widened in 1997, reflecting the U.S. dollar's appreciation against many foreign currencies. The average cost level for the 28 foreign economies studied by the Bureau of Labor Statistics, U.S. Department of Labor, was 16 percent lower than U.S. costs, when weighted by their importance in trade with the United States. The gap was only 5 percent in 1995 - the smallest difference in the 1975-1997 period.

While hourly compensation costs in Europe and Japan remained above the U.S. level in 1997 - 12 and 6 percent, respectively - these cost differences narrowed significantly from the previous year. Costs in Canada declined slightly, lowering their level to 91 percent of U.S. costs. (See charts 1 and 2.) Hourly compensation costs for manufacturing production workers in the Asian newly industrializing economies (NIEs) declined for the first time since the series began in 1975. Costs in the Asian NIEs declined to 36 percent of the U.S. level. In contrast, manufacturing compensation costs in Mexico posted a strong increase over the year, yet were still only one-tenth of U.S. costs.

Chart 1. Hourly compensation costs in U.S. dollars for Production workers in manufacturing, 1975-97

PRINTED COPY CONTAINS CHART AT THIS POINT.

BOX: A NOTE ON THE MEASURES

The hourly compensation measures in this news release are based on statistics available to BLS as of June 1998. The 1997 compensation statistics are preliminary measures; for some of the foreign countries, they are based on less than full-year data. These measures are prepared specifically for international comparisons of employer labor costs in manufacturing. The methods used, as well as the results, differ somewhat from those for other BLS series on U.S. compensation costs.

Total compensation costs include pay for time worked, other direct pay (including holiday and vacation pay, bonuses, other direct payments, and the cost of pay in kind), employer expenditures for legally required insurance programs and contractual and private benefit plans, and, for some countries, other labor taxes.

Labor cost measures: The compensation measures are computed in national currency units and are converted into U.S. dollars at prevailing commercial market currency exchange rates. They are appropriate measures for comparing levels of employer labor costs, but they do not indicate relative living standards of workers or the purchasing power of their incomes. Prices of goods and services vary greatly among countries, and commercial market exchange rates do not reliably indicate relative differences in prices.

Data limitations: Hourly compensation is partly estimated, and data are subject to revision in the next update. The comparative level figures are averages for all manufacturing industries and are not necessarily representative of all component industries.

For further information regarding definitions, sources, and computation methods and a description of the trade-weighted measures and economic groups, see the Technical Notes.

END OF BOX (A NOTE ON THE MEASURES)

Comparative compensation costs in U.S. dollars

Hourly compensation costs for manufacturing production workers in the United States increased 3.1 percent from their 1996 level to $18.24 in 1997. Among the 28 foreign economies studied, only four - Mexico, Hong Kong (Special Administrative Region of China), Israel, and the United Kingdom - had increases in 1997 in hourly compensation costs measured in U.S. dollars.

Hourly compensation costs in Canada declined 0.7 percent in U.S. dollar terms. Although Mexico's costs increased a sharp 13.6 percent, their level, at $1.75, was only about 10 percent of U.S. costs. (See tables A and 2.)

Differences between hourly compensation cost levels in Japan and many European countries and the cost level in the United States had reached record highs in 1995. Measured in U.S. dollars, at that time, costs in Japan were 39 percent above U.S. costs, and the trade-weighted average cost level for the European countries studied was 29 percent higher than the U.S. level. By 1997, these cost gaps had shrunk considerably.

Declines in hourly compensation costs measured in U.S. dollars in Japan and Europe substantially reduced the gaps with U.S. costs, which have grown. In Japan, hourly compensation costs declined 7.4 percent, following a 12.2 percent drop in 1996. This left their cost level just 6 percent above U.S. costs. The trade-weighted average cost level in U.S. dollar terms for the European countries studied declined 6.1 percent in 1997, leaving it 12 percent above U.S. costs.

The United Kingdom, where costs increased 9.5 percent, was the only European country in which compensation costs increased in 1997 in U.S. dollar terms. The pound was the only foreign currency that appreciated against the dollar.

The largest cost reductions among the economies studied occurred in several European countries. Hourly compensation costs in Switzerland dropped 14.6 percent, and five other European economies had declines in compensation costs of 10 percent or more. Hourly compensation costs in Germany fell 11 percent. Thus, by 1997, German costs had declined to 55 percent above U.S. costs from 87 percent above U.S. costs in 1995.

Despite these declines, 1997 hourly compensation cost levels tended to be higher in Europe than in the other economies studied. For example, at more than 11/2 times the U.S. cost level, Germany's 1997 compensation costs in U.S. dollars continued to exceed those of all the other economies studied.

Among the Asian NIEs - Hong Kong SAR, Korea, Singapore, and Taiwan - the trade-weighted average level of hourly compensation costs measured in U.S. dollars declined between 1996 and 1997 for the first time in the history of the comparative series. The decrease of 2.5 percent brought trade-weighted average costs in the Asian NIEs to 36 percent of the U.S. cost level. A major factor contributing to the decline of the trade-weighted average was a 10.8 percent drop in U.S. dollar-based hourly compensation costs in Korea. (Hong Kong became a Special Administrative Region (SAR) of China in July 1997.)

Overall, the trade-weighted average cost level for the 28 foreign economies studied decreased 2.4 percent in 1997. The foreign cost level of 84 percent of U.S. costs in 1997 was a sharp reduction from the record high level of 95 percent reached in 1995.

BOX: (Data for Germany)

Data for Germany appearing in this news release relate to the former West Germany. BLS has prepared preliminary estimates of hourly compensation costs in the former East Germany and Unified Germany. These calculations indicate that, in 1997, hourly compensation costs for production workers in manufacturing in the former East Germany were 64 percent of costs in the former West Germany. Hourly compensation costs in U.S. dollars were $27.36 in Unified Germany as a whole in 1997, slightly below the level in the former West Germany. The close relationship between the figures for Unified Germany and the former West Germany is due to the large proportion of manufacturing employment in Unified Germany accounted for by the former West Germany.

END OF BOX (Data for Germany)

Chart 2. Indexes of hourly compensation costs in U.S. dollars for production workers in manufacturing, 1997 (U.S. = 100)

PRINTED COPY CONTAINS CHART AT THIS POINT.

Table A.  Percent change, 1996-97



Hourly compensation costs, in national currency and in U.S. dollars,

for production workers in manufacturing

and exchange rates (U.S. dollars per national currency unit)





Country                  National     Exchange    U.S.

or area                  Currency     Rates      dollars





United States              3.1            -        3.1

Canada                      .8         -1.5        -.7

Mexico                    18.7         -4.0       13.6



Australia                  2.0         -5.1       -3.1

Hong Kong SAR 1            5.7          -.1        5.4

Israel                    15.0         -4.7        9.6

Japan                      3.0        -10.1       -7.4

Korea                      5.5        -15.4      -10.8

New Zealand                3.6         -3.6        -.1

Singapore                  4.4         -5.1       -1.0

Sri Lanka                    -            -          -

Taiwan                     4.1         -4.6        -.7



Austria                    2.5        -13.3      -11.1

Belgium                    1.9        -13.5      -11.9

Denmark                    4.1        -12.2       -8.7

Finland                    2.9        -11.6       -9.0

France                     3.0        -12.4       -9.8

Germany 2                  2.5        -13.3      -11.0

Greece                       -           -           -

Ireland                    3.3         -5.2       -2.0



Italy                      4.3         -9.4       -5.6

Luxembourg                   -            -          -

Netherlands                3.5        -13.7      -10.7

Norway                     3.9         -8.8       -5.3

Portugal                   7.8        -12.0       -5.2

Spain                      4.0        -13.5      -10.0

Sweden                     4.0        -12.3       -8.7

Switzerland                 .2        -14.8      -14.6

United Kingdom             4.3          4.9        9.5



Trade-weighted measures 3

All 28 foreign economies   4.4         -6.5       -2.4

OECD 4                     4.3         -6.9       -2.9

     less Mexico, Korea 5  2.4         -6.8       -4.6

Europe                     3.3         -9.1       -6.1

European Union             3.4         -8.8       -5.7

Asian NIEs                 4.8         -7.0       -2.5





Dash means data not available.

1  Hong Kong Special Administrative Region of China.

2  Germany refers to the former West Germany.

3  The 1996-97 percent changes for the trade-weighted measures are based 

   upon the changes for the 25 countries or areas for which 1997 data 

   are available.

4  OECD refers to the Organization for Economic Cooperation and 

   Development.

5  Mexico joined the OECD in 1994, and Korea joined in 1996.

Comparative cost trends in national currencies

Changes over time in relative compensation cost levels in U.S. dollars are affected by the differences in underlying national wage and benefit trends measured in national currencies, as well as frequent and sometimes sharp changes in relative values of currency exchange rates. A country's compensation costs expressed in U.S. dollars are calculated by dividing compensation costs in national currency by the exchange rate (expressed as national currency units per U.S. dollar).

Measured in national currency terms, only six of the 28 foreign economies studied had 1997 increases in hourly compensation costs that were moderately to significantly lower than the U.S. increase of 3.1 percent. Among these were two countries - Canada and Switzerland - that had increases of less than 1 percent.

Canada's 0.8 percent rise in hourly compensation costs represented a substantial slowing from it's 3.2 percent increase the previous year. While Mexico's 18.7 percent increase in 1997 was the largest of the year among the economies studied, it was in line with that country's average rate of hourly compensation cost growth throughout the 1990s.

Hourly compensation cost growth in Japan and the trade-weighted average increase for the European countries were 3.0 percent and 3.3 percent, respectively, between 1996 and 1997 when measured in national currencies, about matching the U.S. rate of increase (3.1 percent). While most European countries had growth in compensation costs in the range of 2 to 4 percent, compensation costs in Switzerland edged up a slight 0.2 percent, and costs in Portugal continued to increase at a rapid rate (7.8 percent).

Between 1996 and 1997, the trade-weighted average increase in hourly compensation costs measured in national currency terms in the Asian NIEs was 4.8 percent, substantially below the 9.4 percent increase of the previous year and the average rate of compensation growth for the region from 1990 forward. The causes of this slowing were significant reductions in hourly compensation growth in Korea and Singapore. Korean compensation costs increased 5.5 percent in 1997, down from 15.8 percent the previous year and well below Korea's average rate of increase of almost 15 percent during the 1990s. Similarly, Singapore's cost increase of 4.4 percent in 1997 represented an abrupt deceleration from the 12.9 percent growth rate of the previous year and also was below that country's average rate of increase for the decade thus far.

The trade-weighted average increase in hourly compensation costs measured in national currency terms for all 28 foreign economies was 4.4 percent in 1997, compared with 5.7 percent in 1996 and a 5.9 percent average rate since 1990.

Exchange rates

For the second consecutive year, the currencies of most of the foreign economies studied depreciated relative to the U.S. dollar. In fact, the declines in currency values were more widespread and, in general, larger in 1997 than in the previous year.

Among the currencies of the foreign economies studied, only the British pound appreciated against the dollar between 1996 and 1997, rising 4.9 percent. Excluding the Hong Kong dollar, the value of which is pegged to the U.S. dollar, currency values for the other economies fell over the year at rates ranging from 1.5 percent in Canada to more than 15 percent in Korea.

The Japanese yen dropped 10.1 percent relative to the dollar in 1997 after falling 13.6 percent the previous year. Thus, the yen's value declined 22 percent during the period from 1995 to 1997.

The trade-weighted average value for the European currencies decreased 9.1 percent in 1997. The trade-weighted average rate takes account of the British pound's appreciation. In fact, most of the European currencies declined between 11 and 13.5 percent over the year, with the Swiss Franc falling a steep 14.8 percent.

Except for Korea, where the won fell 15.4 percent, currency values in the Asian NIEs (omitting Hong Kong SAR) and the other Pacific Rim economies of Australia and New Zealand declined moderately, in the range of 3.5 to 5 percent.

The weakness of the foreign currencies relative to the U.S. dollar in 1997 offset increases in hourly compensation costs measured in national currencies and led to declines or smaller increases in hourly compensation costs measured in U.S. dollars. Thus, trade-weighted hourly compensation costs for the 28 foreign economies studied increased 4.4 percent between 1996 and 1997 in national currency terms, but dropped 2.4 percent when measured in U.S. dollars; and compensation costs in Japan and Europe increased about 3 percent measured in national currencies, but fell 7.4 percent and 6.1 percent, respectively, in U.S. dollar terms.

Korean compensation costs increased 5.5 percent in national currency, but fell 10.8 percent in U.S. dollars. The large decline in U.S. dollar- based compensation costs in Korea contributed substantially to the decrease in trade-weighted average hourly compensation costs measured in U.S. dollars for the Asian NIEs.

Recent exchange rates: The 1997 trends in exchange rates have, in general, continued during 1998. As of late August 1998, the currencies of most of the economies studied had continued to decline against the U.S. dollar from their 1997 average levels. The declines were largest in Asia and the Pacific Rim economies. The Korean won had dropped by 27 percent, the Japanese yen was down 16 percent, and the other currencies of the region (omitting Hong Kong SAR) had declined 16 percent or more from their 1997 average levels.

Similarly, the Canadian dollar (down 11 percent) and the Mexican peso (down 19 percent) have also depreciated relative to the dollar more rapidly in 1998 through late August than in 1997.

Currency values in most European countries declined less rapidly than did those in the Asia-Pacific region and North America. The trade-weighted average currency value for the European countries in late August was 3.5 percent below its 1997 level.

At August 1998 exchange rates, assuming underlying compensation trends in all countries were similar to U.S. trends between 1997 and August 1998, hourly compensation costs in Japan would have fallen from 106 percent of U.S. costs to 89 percent of the U.S. level; costs in the Asian NIEs would have fallen from 36 percent of U.S. costs to 30 percent ; the European trade-weighted average would have declined from 112 percent of U.S. costs to 108 percent; and the trade-weighted average for all 28 economies covered would have decreased from 84 percent to 75 percent of the U.S. cost level.

Additional data available

In addition to the compensation cost measures covered in this news release, additional data are available showing comparative levels of hourly compensation costs, hourly direct pay, and pay for time worked and the structure of compensation in manufacturing for all years from 1975 through 1997.

BLS also computes comparative measures for 39 component manufacturing industries. Data are available through 1994. These data for the component industries are not included in this release because, in general, the data limitations are greater than they are for the total manufacturing measures. Nevertheless, these data are made available upon request and via the Internet (http://stats.bls.gov/flshome.htm), and there are no restrictions on their use.

For further information, contact the Office of Productivity and Technology, Bureau of Labor Statistics, 2 Massachusetts Avenue, NE, Room 2150, Washington, DC 20212-0001 or call 202-606-5654.

Information in this report is available to sensory impaired individuals upon request. Voice phone: 202-606-STAT; TDD phone: 202-606-5897; TDD message referral phone: 1-800-326-2577.

This material is in the public domain and, with appropriate credit, may be reproduced without permission.

BOX: REVISED MEASURES

Revised underlying data on average hourly earnings or additional compensation costs were incorporated for 16 of the countries covered in this news release.

For 10 countries, revised data reflected changes in survey methodology or BLS calculation methods. The resulting differences in hourly compensation cost levels for 1996 were more than one percent for four countries-Mexico, Taiwan, France, and Italy.

Data from the Canadian survey of employment, payrolls, and hours were revised back to 1983 for selected industries, but, for total manufacturing, the average hourly earnings were changed only for 1993. The revisions are part of an ongoing re-engineering of the survey, and future revisions are possible.

For Mexico, a new monthly industrial survey with expanded industry coverage resulted in a higher earnings trend since 1994. For Japan, monthly labor survey benchmarks made every three years were incorporated in the BLS calculations.

Earnings survey data published on new industrial classification systems were incorporated for four other countries. New series were linked to old for Sweden and the United Kingdom, while old series were linked to new for Germany. A link was not possible for Spain.

Labor cost surveys for 1989-96 were incorporated for Taiwan. Compensation cost levels were revised back to 1993 for both Italy and Sweden to incorporate new information on holiday and vacation pay and employer social insurance expenditures for Italy, and a different calculation for sick leave pay for Sweden.

For France, revised cost levels back to 1989 reflect an adjustment of the bonus payments as reported in the 1992 European Union harmonized labor cost survey. A change in collection procedures in the 1992 survey resulted in a discontinuity in the data on irregular versus regular bonuses; BLS held constant the bonus ratios from the previous 1988 labor cost survey.

END OF BOX (REVISED MEASURES)

• Table 1. Indexes of hourly compensation costs (United States = 100)
  
• Table 2. Hourly compensation costs in U.S. dollars
  
• Table 3. Annual percent change in hourly compensation costs in U.S. dollars
  
• Table 4. Hourly compensation costs in national currency
  
• Table 5. Annual percent change in hourly compensation costs in national currency
  
• Table 6. Exchange rates (National currency units per U.S. dollar)
  
• Table 7. Annual percent change in exchange rates
  
• Technical Notes
  
  
• Text version of entire news release

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