Labor Compensation, Labor Productivity and Labor Cost Advantage

Abstract

Unlike the usual practice of equating wages or labor compensation with labor cost, this paper incorporates labor productivity into an analytical framework and holds that the labor cost advantage is the relative relationship between labor compensation and labor productivity. Based on an empirical study of the data of Chinese manufacturing firms that include al state-owned enterprises and non-state-owned enterprises with their annual revenue greater than 5 million yuan from 2000 to 2007, this paper finds that labor compensation growth was accompanied by faster labor productivity growth. Hence, the labor cost advantage was not weakened during this period. Furthermore, this paper conducts an exploration of how to sustain labor cost advantages in the future and proposes that they can be sustained by upgrading the industrial structure and improving the education system.

Keywords: labor compensation, labor productivity, labor cost advantage