Constructing Annual Employment and Compensation Matrices and Measuring Labor Input in China

This paper documents the procedures in constructing China's employment and compensation metrics and measuring labor input in the Chinese economy. We begin with discussions of major conceptual, coverage, and classification problems in the official labor statistics and then propose strategies to solve the problems using a labor indexing methodology. This methodology allows the human capital attributes of any employed person weighted by their specific costs and the sum of the costs is controlled by the national income accounts. It guides our basic data work to adjust breaks, fill gaps, and restore consistencies in annual statistics and in benchmark marginal matrices. We use the iterative proportional filling (IPF) approach to obtain full-dimensioned employment and compensation matrices for benchmarks and, based on which, we then construct the matrices in time series. We show that China's total (cost-weighted) labor input grew by 4.1% per annum in 1980-2010, of which changes in quality and in hours worked made almost equal contributions. We also find that nearly half of the 2% quality improvement was attributable to changes in the industrial structure, followed by changes in education attainment and age structure.