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A few dollars more

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by April 21, 2017 General

A few dollars more

Asia leads the world on wage growth and even China’s solid salary gains are not dulling its competitive edge

With some of the cheapest labor in the world, wages in Asia are growing faster than anywhere else.

Wage growth in emerging and developing G20 countries dropped to 2.5 percent in 2015, according to the International Labour Organization, but this year, in Asia Pacific, data provider ECA International expects real wage increases to hit 2.6 percent — higher than all other regions.

Real wages are wages that have been adjusted for inflation over time.

“Labor markets in Asia are fairly flexible, in the sense that government rules and regulations do not have a major impact. As a result, the wage increases that we see typically tend to be consistent with market developments and are economically sustainable,” said Louis Kuijs, head of Asia economics at Oxford Economics, a Hong Kong-based consultancy.

Some of the greatest gains in East Asia were visible in China, where average hourly manufacturing wages trebled to $3.60 between 2005 and 2016, according to consultancy Euromonitor International.

Wages in China have been rising in tandem with the country’s breakneck growth. The average wage of the country’s manufacturing sector is now outstripping Brazil and Mexico and quickly catching up with weaker eurozone economies like Greece.

“Minimum wages in China increased for different regions, and (the growth) has been constant since 2010, but at a different pace,” said Daniel Kostzer, senior wage specialist for Asia Pacific with the ILO.

“All the (minimum wages in Chinese) regions increased above 30 percent between 2010 and Dec 2016, but others, such as Jiangxi, almost doubled the nominal wage. Beijing had an increase in the nominal minimum wage of 63 percent in that period.”

The major municipalities of Beijing, Shanghai, Tianjin and Chongqing, as well as the provinces of Liaoning, Jiangsu, Hainan, Shandong and Hebei, all saw gains in monthly wages in 2016 of an average of 10.7 percent.

This is a slower rate than previous years, which can be attributed to weaker economic growth, but it is far more than other economies.

According to ECA International, the average real wage increase of 4.7 percent forecast for Chinese workers in 2017 is considerably higher than the global average forecast of 1.5 percent and the Asia-Pacific forecast of 2.6 percent.

These high salary increases place China fourth in ECA’s “global real wage increase” rankings for 2017, up two places from the previous year.

Shanghai remains the city with the highest minimum wage, with workers entitled to 2,190 yuan ($317) per month. Shenzhen (2,030 yuan), Guangzhou (1,895 yuan) and Beijing (1,890 yuan) round out the top four.

“China’s wage growth remains solid, driven by a relatively favorable position of employees on the labor market due to continued demand for labor in China’s cities, demographic pressures and improved conditions in the countryside,” said Kuijs from Oxford Economics.

While this could mean that China will lose its competitive edge to emerging Southeast Asian countries, experts say otherwise.

Kuijs noted that the impact of rising wages on the corporate sector varies across the spectrum.

“Higher wages are leading to the movement of lower value-added manufacturing activity to other Asian countries with lower wages, such as Vietnam, Cambodia and Bangladesh.

“However, fairly rapid productivity increases and movement up the value chain means that in middle and higher value-added manufacturing activity, China is eating away market share of other countries.”

As a result, Kuijs said, the overall solid wage growth is not eroding the competitiveness of the manufacturing sector.

Some experts say that China’s wage increases are not as generous as previous years, mainly due to authorities trying to shift from an export and investment-led model to one more reliant on domestic consumption.

Lee Quane, regional director for Asia with ECA International, said in a news release that “inflation-busting salary increases” offered by employers suggest that attracting and retaining staff is still a key challenge in China.

Going forward, Chinese employees will see their salaries rise by an average of 7 percent in 2017, according to ECA’s latest Salary Trends survey.

And Chinese consumers have the highest wage growth expectations in Asia, foreseeing real wage growth of 6.1 percent over the next six months, according to a new survey by Credit Suisse and Nielsen.

In Asia Pacific, most countries boosted the minimum wage over the inflation rate, which remained fairly low in most of the region.

South Korea recently increased its minimum wage to 6,470 won ($5.70) per hour for 2017, up 7.3 percent from last year. South Korea’s Ministry of Employment and Labor said the pay rise would affect an estimated 3.36 million workers. But the Federation of Korean Trade Unions had wanted a greater increase and said this raise would serve only to put more burden on smaller companies facing tough economic conditions.

“We expected a double-figure pay rise, if not 10,000 won,” said the federation last year. “The decision does not take into consideration those suffering due to a low income.”

In Japan, hourly wages for part-timers in the metropolitan areas surrounding Tokyo, Osaka and Nagoya topped 1,000 yen ($9.05) for the first time last November.

According to Japan’s Ministry of Health, Labour and Welfare, part-time hourly wages came in 2.5 percent higher in January than a year earlier, outstripping growth in full-time workers’ pay.

Moving away from East Asia, wages in parts of Southeast Asia also climbed.

Minimum wages in Cambodia rose to the equivalent of $153 per month this year, up from $140 in 2016. Wages also increased in Vietnam, where monthly minimum pay is now 3.75 million dong ($165).

Kostzer of the ILO said that with reduced demand for exports in developed countries, Asia-Pacific countries saw the minimum wage as a central policy tool for boosting domestic demand and compensating the negative effects of the slowdown in the rest of the world.

“Looking at the changes in minimum wages in relation to changes of domestic prices, a proxy to the purchasing power of wages, the result is positive in all the countries.”

In terms of real wage increases in Southeast Asia, Vietnam, Indonesia, Cambodia, Thailand and Singapore topped the charts in the ECA’s 2017 Asia-Pacific rankings.

Kuijs said that in rapidly developing countries, pressures arise that are challenging for individual firms. “But, for the economy as a whole, the wage growth tends to be sustainable,” he said.

Southeast Asia has some of the cheapest labor, and is often seen as stealing China’s thunder as a manufacturing hub.

Regional minimum salaries are in place in Vietnam, Malaysia, the Philippines and Indonesia, and they may vary greatly between poorer provinces and capital cities.

In some countries, only certain economic sectors have regularized minimum wages, such as the garment industry in Cambodia.

Kostzer said increased interest in minimum wage policies has not been driven by a call for the “end of cheap labor” but by more calculated political concerns over social instability and rising inequality.

That said, Cambodia agreed to raise the minimum monthly wage for textile workers this year to $153 — a hike of 9.3 percent. The country has around 700,000 workers in the garment industry.

Kostzer said that strategies to keep wages low in order to attract investment are being replaced by ways to increase competitiveness.

These include the improvement of human capital by investing in education and health, and improving infrastructure to make goods and services more accessible to markets.

However, these initiatives are not enough to completely curb vulnerable employment as laid out in the recent ILO report, World Employment and Social Outlook Trends 2017.

“Entering 2017, working poverty (both extreme and moderate) is projected to continue to decline, in both rate and absolute number, while vulnerable employment numbers look set to rise, despite decreases in the vulnerable employment rate, largely as a result of population growth, especially in Southern Asia.”

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