Working Conditions

A short overview of the use of piece rates in China

The actual incidence of piece rate wages in China is complicated to gauge, but it has certainly been established that the use of this compensation scheme is most often detrimental to workers. Not only is much of the data of poor quality, but “the government wants to hide the fact that numerous companies illegally pay their workers far less than the stated minimum wage” [NOTE 1] particularly through the use of piece rates.

Although piece rates are clearly defined by the People’s Republic of China in the National Bureau of Statistics as “labour rewards paid to finished works by the unit price of piecework” [NOTE 2] and addressed by Article 37 of its Labour Law, [NOTE 3] abuse of this method of payment is clearly one of the greatest towards workers.

The purpose of paying workers in terms of their production is, of course, to provide an incentive for harder work and increased productivity. The rapidly growing field of personnel economics, including case study work by Ed Lazear (1986) [NOTE 4] and Casey Ichniowski and Kathryn Shaw (2003) [NOTE 5] for example, has largely supported that thesis. A 2003 productivity program explored by the UK-based Impactt Limited and Hong Kong Productivity Council at five Chinese factories approved by Gap Inc. found that in one factory “because workers were paid a piece rate, improved productivity led to a 50 percent increase in their total monthly pay.” [NOTE 6] In general, going along with the opening up and Four Modernizations policy since the late 1970’s, piece rates were reinstated in 1980 in order to spur production. [NOTE 7] Little systematic study has however been done on the effect of piece rates on Chinese workers. And as the trade union movement knows only too well, piece rates are abused throughout the world in order to increase productivity while keeping wages down.

Since their reintroduction in 1980, piece rates and performance pay have permeated through a wide array of industries and fields in China. Indeed a May 1981 declaration by the State Council recommended that piece rates be introduced in all “factories, mines, and enterprises where it was possible to do so.” [NOTE 8] But piece rates are definitely not confined to industrial work: Susan Shirk finds that, increasingly, hairdressers are paid as a function of how many heads they cut, and some doctors and nurses are even paid per patient in some hospitals. The countryside has also been affected by these schemes, with one agricultural responsibility system assigning groups plots and paying them according to their production, and some rural cadres’ salaries “correlated with the prosperity of the community.” [NOTE 9] However, it is certainly the case that piece rates have found most common usage in factories, especially those employing cheap labour.

Factory practice – different methods

Most of the data and work that is available about industrial use of piece rates comes from Guangdong Province factories, which are notorious for their mistreatment of staff. Although many are paid by the hour, piece rates are employed especially where handcraft labour is used, and some workers receive a combination of both systems.

An extensive report on the toy industry in China found a wide array of styles of compensation. The Kay Long factory’s piece rate workers, for example, “are paid only according to the number of pieces made,” while workers at Wei Wang receive a base pay per month as well. [NOTE 10] Jie Ling factory does not use any kind of piece rate pay. Curiously, Jie Ling is also the only one of the 10 factories surveyed which actually pays workers in compliance with China’s Labour Law.

In some cases, the idea of piece rates as a means of paying per amount produced has taken on another form. Some factories have been establishing quotas which workers must surpass in order to earn their wage, with traditional piece rates being awarded for any amount in excess of the quota. Workers at City Toys and Wei De, two firms producing toys for McDonald’s, have a fixed “normal” rate for eight hours of work, which can only be collected if they “hit a fixed production quota everyday no matter how many hours it takes.” [NOTE 11] Likewise, workers at the Kingmaker factory in Zhuhai, producing footwear for international consumption, are paid with piece rates and a base monthly wage, “but only if they complete their monthly quota.” [NOTE 12]

Abuse of Piece rates to pay less

Any discussion about the degree to which firms use piece rates to abuse workers’ rights should also mention that this is a topic where dissemination of information is quite controversial. While most of the reporting on labour rights infractions comes from unions and news agencies, information also tends to be omitted.

For example, an analysis of Price Waterhouse Coopers (PwC) labour monitoring by an independent research team found that, while workers were being paid much less than the stated minimum wage, “PwC failed to discuss the piece rate pay system in their report or to recommend procedures to bring wages into compliance with local laws.” [NOTE 13] Even though there is not much information about the merits of piece rates in China, the reports on their use for exploitation of workers is quite considerable.

Complex accounting and misinformation

Although the concept of a piece rate wage is attractive in its simplicity and seems easy to calculate, especially in factories where production is confined to simple and repetitive tasks, much of the controversy surrounding piece rates arises from workers not understanding how they are determined.

At the Mattel toy factories in Guangdong, workers are paid in a mix of piece rates, regular pay, and overtime, so that wages “take into account the total amount of material supplied, the total pieces produced, the number of workers involved, and the hours worked” [NOTE 14] in a jumbled way. Factories supplying Disney and Timberland products have similar problems, using a “confusing and arbitrary system” [NOTE 15] of piece rates and regular pay, that are “sometimes further reduced by a number of dubious deductions.” [NOTE 16]

One reports gives details of the Wuhan Fengguang Drawnwork Co. Limited which would lower (or more rarely rise) piece rates at different times during the year according to the alleged cost of the cloth. A worker sewing a garment in October may be paid 3 Yuan per piece in November be paid only 2.8 Yuan because cotton prices had decreased. [NOTE 17]

Unreachable quotas – piece rates and overtime

Actually, many companies employing piece rates also force workers to reach designated quotas of production in order to earn their wages. A 2006 assessment of toy factories in Guangdong found that, by law, quotas and piece rates would have to be set at levels such that the workers would be earning about 41 cents an hour. At Huangwu No. 2 factory, which makes Wal-Mart toys, workers were actually earning 43 cents an hour, but only if they reached their quota: in the spray department this meant painting 8,920 toys per day or one every 3.23 seconds, translating into “an astounding $0.0003862 cents per operation.” [NOTE 18] Workers who did not reach the quota were paid 18 cents per hour.

Similarly, workers at the Kingmaker shoe factory in Zhuhai receive their monthly base pay of 510 yuan only if they complete their quota. Since the quotas are seldom adjusted, this means that during the slow season a worker might find it impossible to fulfill the quota. In fact, “one worker in the stitching department said she received only 24 yuan in March, 2005.” [NOTE 19]  

The combination of quotas and low wages per piece results in most piece rate workers putting in very long hours. The report on the boot industry in Tianjin found that the city’s minimum wage is 670 yuan, “a deceptive figure because almost everyone employed in a factory works overtime.” [NOTE 20] This finding is echoed throughout China.

Employers see piece rates as a great compensation scheme since “paying by the piece rate avoids the question of overtime compensation.” [NOTE 21] At some of the Disney toy factories, workers are forced to work 12-16 hour days, well in excess of the eight hour legal minimum, and in peak seasons “workers were forced to work all night, working continuously for 30 hours” [NOTE 22] with no day off. The problem of extreme hours is not specific to piece rates, though, with hourly workers experiencing the same sort of mistreatment.

Profits before rates and wages

Even without the use of quotas, piece rate wages are dreadfully low, and tend to be below the minimum wage. In a study of the soccer and football factories in Guangdong owned by Hong Kong and Taiwanese capital, it was found that in the low season, piece rate workers earned an average of RMB 300-400, where the minimum wage is RMB 450. A piece rate calculation revealed that, for the most expensive of balls produced at the Guan Ho factory, workers earned RMB 0.7 per piece, with less for other balls. [NOTE 23]

The question of low piecework wages seems to have an easy solution, however. A report by the International Herald Tribune found that, in a factory in Tianjin that makes designer boots for sale in the United States, workers earn 2.6% of every pair sold in the US for $49.99, or the equivalent of $1.30. Moreover, if wages for workers were doubled in every sector, the final shelf price of the same boots would rise from $49.99 to $51 and change. [NOTE 24] A similar study found that “total wages are never more than 5% of the total cost of an article of clothing” so that if wages were to double a pair of jeans worth €41 would rise to €43, a negligible amount. [NOTE 25]

Fluctuating Piece rate wages or low but steady income?

A characteristic problem that arises from piece rate employment is the variation of wages in relation to the business cycle. With rates unchanged throughout the year, workers can sometimes enjoy good payment in the high season, coupled with meager wages when there is no work. At the Guangdong soccer factories, earnings ranged from RMB300 (a number below the minimum wage) to RMB 1400. The maximum of RMB1400 is earned, however, after working 15 hour days at grueling speed. Even though hourly workers at some factories earn wages below the legal minimum, this is sometimes preferred since at least it is a guaranteed steady income. At the Kingmaker shoe factory, a worker in a department paid by piece “may be paid by the hour if he or she is in good terms with the department supervisor.” [NOTE 26]

Occupational injuries increase

Another complication that arises because of the specific nature of piece rates is a higher incidence of injuries coupled with worse quality products. The point of introducing piece rates into manufacturing is to entice workers into exerting more effort and streamlining their production. However, with Chinese workers facing the possibility of missing a quota and starvation wages in some cases, accidents occur more frequently as workers seek to maximize their labour at all costs. Responding to a peak season spike, soccer ball manufacturers will move efficiently and produce 70-300 balls per day and earn up to RMB1400, yet at a price of having a pair of deformed hands. [NOTE 27] In some state-owned mines, untrained farmers have been hired to work on piece rate pay when the regular employees refuse, “and this has been a factor in China’s high accident rate in the mining sector.” [NOTE 28]

A study as early as 1981 on manufacturing in Guangdong concluded that:

From the standpoint of management, the major problems caused by the piecework-type bonuses are low quality and neglect of safety rules. The press has reported that shoddy products and serious industrial and mining accidents are the unfortunate by-products of workers’ eagerness to over-fulfil [sic] their quotas. [NOTE 29]

Some injuries are caused by employees working too fast or without care, and some are direct results of the extreme hours labourers must work to fulfill their quotas: the Hong Kong Christian Industrial Committee reports that, at a factory that makes McDonald’s toys, “two workers in the molding section broke their fingers because of fatigue” as a result of working days of up to 20 hours. [NOTE 30]

Conclusion

From the factory owner’s point of view, paying workers in accordance with their production seems to be a great idea in theory, acting as an incentive for increased production and efficiency. In fact, some factories do see rises in their output by switching to piece rate pay. However other issues also need to be taken into account that slow down production such as inefficient management systems, procedures and handling of orders have been shown to be a major cost and more relevant to increasing productivity and profit than paying workers a decent wage in China. Currently the actual costs of many piece rate schemes are numerous, and tend to hurt the workers rather than their employers. Given the evidence the system is widely used inside China to mask illegally low wages and increase overtime to excessive levels.

NOTES

Bibliography and further reading

Chen, John. "Reflections on Labour Law in China." Asian Labour Update

China Labour Watch. The Kingmaker Company's Factory in Zhuhai, China: Stolen wages, unfair labour practices. New York: China Labour Watch, 2005.

Clean Clothes. "Won't 'clean clothes' be expensive?" Clean Clothes Campaign Newsletter May 2007: 7.

Committee, Hong Kong Christian Industrial. Working conditions of soccer and football workers in mainland China. Hong Kong: Hong Kong Christian Industrial Committee, 2002.

Divjak, Carol. Appalling conditions continue in China's toy factories. 25 March 2006. 17 May 2007 <http://www.wsws.org/articles/2006>.

Fuller, Thomas. "Trade imbalance masks a struggle to get by in China." International Herald Tribune 3 August 2006.

Gap Inc. "Examining factory operations - Impactt/HKPC productivity program findings." 2003.

Hong Kong Christian Industrial Committee. "McDonald's Toys: do they manufacture fun or more exploitation?" 2007.

Ichniowski, Casey and Kathryn Shaw. "Beyond Incentive Pay: Insiders' estimates of the value of complementary human resource management practices." The Journal of Economic Perspectives (2003): 155-180.

Kernaghan, Charles. "Broken Lives: Behind U.S. production in China." 2007.

"Labour Law of the People's Republic of China." Beijing: Eight National People's Congress, 5 July 1994.

Lau, Raymond. "China: Labour reform and the challenge facing the working class." Capital & Class (1997).

Lazear, Ed. "Performance pay and productivity." The American Economic Review (2000): 1346-1361.

Meng, Xin. "An examination of wage determination in China's rural industrial sector." Applied Economics (1996): 715-724.

National Bureau of Statistics of China. "Regulations on the composition of gross wages." Law. 2002.

Navarro, Peter. "The "China Price" and weapons of mass production." Financial Times (2007).

O'Rourke, Dara. Monitoring the Monitors: A critique of PriceWaterhouseCoopers (PwC) labour monitoring. Cambridge: Massachusetts Institute of Technology, 2000.

Peuples Solidaires. "China-Timberland has to take steps." Solidarity Network (2005).

Shepherd, Ed. "SA8000-an external code of conduct, accreditation and monitoring system." Asian Labour Update

Shirk, Susan L. "Recent Chinese labour policies and the transformation of industrial organization in China." The China Quarterly (1981): 575-593.

Walder, Andrew. "Markets and income inequality in rural China: Political advantage in an expanding economy." American Sociological Review (2002): 231-253.

Watch, China Labour. The toy industry in China: Undermining workers' rights and rule of law. New York: China Labour Watch , 2005.

Wong, Stephen Frost and May. "Monitoring Mattel in China." Asian Labour Update (n.d.).