ILO: China Drives 6% Annual Wage Growth in Asia-Pacific

March 15, 2015

The International Labour Organization’s 2014 Wage Report for the Asia Pacific region shows rapid growth in wages compared to global averages, wide differences in wage levels in the region, expanding formal employment and growing upward pressure on wages from civil society organisations. 

 

Rising Wages, Widening Inequalities

 

Real wages in the Asia Pacific region grew 6% y-o-y in 2013, a slight increase compared with 5.9% in 2012 and faster than the average 2.0% y-o-y growth in global wages in 2013. At the basic level, this is good news for the region because it indicates growing consumer spending power. 

 

 

Annual Growth (%) in Real Wages, Asia vs. Global Average, 2006-2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: ILO Global Wage Report 2014/15 | Asia and the Pacific

 

However, the regional number, as we shall see, masks significant differences in wage levels and growth across the region.

 

Despite seeing strong regional growth, wages remain comparatively low in Cambodia, Indonesia, Vietnam, the Philippines and India, compared with China, Malaysia, and the more developed nations of the Asia Pacific region. 

 

Monthly Salaries (US$) Compared Across Asia-Pacific (2013)

Source: ILO Global Wage Report 2014/15 | Asia and the Pacific 

 

East Asia: 7.1% YoY Growth Driven by China

 

Annual wage growth in East Asia of 7.1% in 2013 (7.7% in 2012) outperformed the regional average of 6%. ILO numbers show that rapid wage growth in China - 7.3% y-o-y for state-owned enterprises and 10.9% y-o-y in private enterprises - drove overall numbers for the region. Elsewhere, wage growth picked upon Korea to 2.5% y-o-y, as new minimum wage legislation drove worker payments. Wage growth in Hong Kong and Taiwan was relatively lacklustre with wages fell 0.2% and 0.6% y-o-y, respectively. 

 

South-East Asia: Minimum Wage Legislation Pushes Up Wage Levels 5.3% YoY

 

Governments in Vietnam, Malaysia, Thailand, Indonesia and Cambodia all raised minimum wage levels in 2013, responding to political pressure and concerns that wage growth had fell behind productivity growth. As such, wage growth picked to 5.3% y-o-y in 2013, compared with 3.7% y-o-y in 2012. 

 

South Asia: Wage Growth Slows to 2.4% YoY

 

Despite patchy data, the ILO report states that real wages in South Asia (India, Pakistan, Bangladesh, Sri Lanka and Nepal) grew 2.4% in 2013, faster than the 1.5% y-o-y growth in 2012, but much slower than the average 5% annual growth on real wages between 2006 and 2011. Many arguments are put forward to explain why, chief among them from the ILO’s point of view is the lack of observance of minimum wage laws. Rampant unemployment in the region has also put wage levels under significant pressure. 

 

Implications

 

What does this mean? For governments, at least, the report gives a snapshot of where they can compete on wage levels against other countries in the region. Principally, it should focus attention on pushing reforms to liberalize investment in manufacturing and industrial sectors, as well as undertaking reforms to improve the business environment. 

 

For corporates, the trend of continuing growth in wages in the region is good for those companies betting on a consumer-demand led future.  Also, Asia Pacific remains competitive in wages terms for manufacturers. 

 

However, the wage data show that demographic pressures discussed here are having a distinct impact on salaries and so it is necessary for corporates and government to have a clear, forward-looking assessment of where demographic pressures will be greatest in the next 50 years.  

 

Finally, corporates should prepare themselves for further cases of government pressure through minimum wages. Upward adjustments were widespread in 2013 and 2014 and legislation is only likely to become tighter, particularly in countries such as Indonesia, Cambodia, Vietnam, the Philippines and India, where young working-age populations will account for a more weighty share of the populace and will bargain for increased wages. 

 

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