by SIG
Chinese version/中文版
On September 25, the decision-makers of the Chinese Communist Party released a central document that mentioned the need to promote reasonable growth in labor compensation and to increase the share of labor compensation in the primary distribution of income. This was also one of the highlights in the communiqué from the Politburo meeting on September 26.
—However, these individuals will probably be disappointed. The slogan of "increasing labor compensation" is very likely to become one of the biggest empty promises from the Chinese Communist Party's Politburo meeting on September 26.
P1
The reason why "increasing labor compensation" is likely to become another empty promise is that this slogan is not a way new one; it has already been mentioned in various important documents and meetings in China in the past. Here's a brief overview:
In 2007, the report of the 17th National Congress of the Communist Party first explicitly stated the need to "gradually increase the share of residents' income in national income distribution and enhance the share of labor compensation in primary distribution." This was said to mark the government's increasing emphasis on promoting social equity through adjustments in the income distribution structure.
In 2010, the "Suggestions of the Central Committee of the Communist Party on Formulating the 12th Five-Year Plan for National Economic and Social Development" again emphasized the need to "strive to achieve synchronized growth of residents' income and economic development, as well as synchronized growth of labor compensation and labor productivity."
In 2013, the "Decision" passed by the Third Plenary Session of the 18th Central Committee of the Communist Party pointed out the need to "improve the tax distribution adjustment mechanism and strengthen tax regulation. Establish a reasonable sharing mechanism for the benefits of public resource transfers."
In 2015, the "Opinions of the Central Committee of the Communist Party and the State Council on Building Harmonious Labor Relations" stated that it is necessary to "establish and improve the normal wage growth mechanism, linking employee wages to enterprise performance, while ensuring that the minimum wage standard can meet the basic living needs of workers."
In 2022, the "Opinions of the Central Committee of the Communist Party and the State Council on Implementing the Employment First Strategy to Promote High-Quality and Full Employment" emphasized the need to "increase the share of labor compensation in primary distribution, strengthen macro-guidance on enterprise wage distribution, and improve mechanisms for determining wages, ensuring reasonable growth, and guaranteeing payment for workers."
On September 25, 2024, the "Opinions of the Central Committee of the Communist Party and the State Council on Implementing the Employment First Strategy to Promote High-Quality and Full Employment" not only reiterated these points but also proposed 24 specific measures, including enhancing the employment synergy of the modern industrial system, expanding enrollment in science, technology, agriculture, and medical fields, and promoting reasonable growth in labor compensation.
After repeating these slogans for so many years, has there been any increase in labor compensation? No, not really, on the contrary, it even saw a decline in 2021:
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I won't elaborate in detail here, but I will mention a few conclusions:
1, The Chinese Communist Party's governance choices actually leave little room for increasing worker compensation. A very simple example is that raising the individual income tax threshold would be an inexpensive and highly effective measure to increase worker compensation. However, raising the monthly individual income tax threshold from 3,500 RMB to 5,000 RMB, despite widespread public support, has taken a considerable amount of time, showing that raising the actual income level of workers has not been a primary policy objective for the Communist Party.
2, The implementation difficulty is extremely high. Increasing the actual income of workers would require fiscal concessions, especially the widely circulated measures to provide childbirth subsidies for families with multiple children. However, China's fiscal revenue is currently quite strained, making it very difficult to provide additional subsidies to residents.
3, If not relying on fiscal revenue, local governments often resort to various "borrowing flowers to offer the Buddha" tricks: the government introduces policies, but the enterprises bear the costs. For example, various localities previously cooperated with the central governments' proposal to extend local maternity leave, which became another form of "bragging competition". It looks like to be a measure to protect women's rights and improve childbirth protection, but in reality, the fiscal system provides no subsidies, and the actual labor costs simply fall fully on the enterprises, forcing them to either reduce the recruitment of women of childbearing age or find ways to squeeze female maternity leave. Ultimately, it is the enterprises and female employees who suffer the losses. The more such "borrowing flowers to offer the Buddha" tricks are played, the more the government's credibility will decline, and when the proposal to increase worker compensation is made again, it will arouse suspicion.
4, The above is just an analysis of the practical operations, not to mention the leakage effects caused by corruption and rent-seeking. How much of the worker compensation that should have been obtained can truly reach the workers is a sharp problem in China.
Therefore, based on these few aspects, it is apparent that one should not have overly high expectations for the "increasing worker compensation" proposed in the September 26th meeting of the Politburo of the Chinese Communist Party.
P4
It is good to propose to increase the proportion of labor compensation in primary distribution, but the other side of the problem is: if the proportion of labor compensation increases, then what elements' compensation proportion would decrease? Is it the government (fiscal) or the enterprises?
Yet, whether it is the government's or the enterprises' compensation proportion that decreases, it means a reduction in tax revenue. In the earlier years when fiscal pressure was not too great, the government had not YET fulfilled its own promises; now that fiscal pressure is huge, what mechanism can guarantee that the government can deliver on its promises this time?
Risk alert: China's economic growth falls short of expectations, fiscal revenue and expenditure deteriorate, and global recession, etc.。
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