Workers Comp in China

November 15th, 2005 by

As China moves its workforce into the modern era, they confront the issues that this country went through about 100 years ago, when the need for workers comp protection was first addressed. After a century of experience, our system has become a staple of the working world. Workers comp offers a unique set of benefits to workers, the only statutorily guaranteed disability insurance for workers in America.
So what happens when the most populous country on earth implements a workers comp system in the proverbial one fell swoop? Our colleague Joe Paduda summarized a presentation by Peter Barth on this subject at the annual Workers Compensation Research Institute conference last month in Cambridge MA. China implemented a program last year, modeled to some extent on this country’s system. Among the highlights:
– the standard for an injury or illness is generally the same as in the US; the statute covers injuries arising “out of or in the course of employment.” Ah, but defining just what this means will take years and years!
– premiums are in three bands, ranging from 0.5% of payroll to 1.5%, with 2.0% for the highest risks. Even with low benefit levels, two percent of payroll will not cover the costs of high risk employers.
– experience rating is in place, but a maximum of one point can be assessed for the worst risks. China will find such a simplistic method far from effective: no credits for companies who prevent injuries and few disincentives for those who ignore safety altogether.
China will operate a monopolistic system, but unlike such systems in this country, the scale will be humongous. It will be whatever the bureaucrats want it to be. But no matter how carefully they anticipate the issues or how narrowly they define the benefits, there will be disputes. And once that happens, they will need some people in suits to sort it out.
Where are the Lawyers When You Need Them?
At the risk of understating the obvious, most of us in the workers comp arena feel some ambivalence about the role of attorneys. We recognize, nonetheless, that they are key players in administering the system. While in theory “no fault,” comp in practice involves a host of divisive and inevitably adversarial issues ranging from what is a compensable injury to determining the dollar value of a disability. It’s not simple. It’s not cheap. And all too often it does not appear to be fair. Attorneys who line the corridors of the courthouses are absolutely necessary components in a system struggling to find an equilibrium between the interests of employers and injured employees.
China lacks the tradition and the infrastructure of attorneys to duplicate the American model. There are slightly over 100,000 attorneys in China, along with nearly 12,000 law firms. This tells you two things: the average law firm is still quite small and the number of lawyers is dwarfed by the country’s population of 1.3 billion people. In addition, many of these attorneys are looking for corporate work, a by-product of China’s burgeoning trade. They are not generally interested in the fate of the Chinese worker. China has only 0.8 attorneys per 10,000 people. In our country, there are 32.7 attorneys per 10000 — the highest such ratio in the world. In Great Britain the ratio drops to 15.4 attorneys, while in Germany and France the figure is 8 and 4 respectively. So just where does an injured employee turn for help?
A Really Big Case Study
It’s fascinating to speculate just how this new Chinese comp system will operate. Employers are responsible for communicating the program to their employees. Never having seen this type of program before — indeed, operating in a system with virtually no fair labor standards — how will these employers actually do this? Will employees feel secure enough to use the system, or will they simply avoid it? How will China develop case law to determine eligibility and compensability? Will they move toward a more sophisticated experience rating approach, to provide incentives for safe operations? This is an experiment in public policy on an unprecedented scale.
There is at least one consequence of this welcomed improvement in the rights and benefits for Chinese workers. The costs of doing business in China are going up. The Financial Times points to a growing gap in the cost of labor in China and India. Annual salaries of Indian project managers averaged $10,039 compared with $23,409 in China. The pay of Chinese financial analysts, at $13,194, also outstripped Indian salaries of $8,408 for the same job. So China may actually find itself losing jobs to the less expensive labor in India. This will give rise to many anguished analyses of their wage and benefit practices. To which I say, welcome to the 21st century!