This paper focuses on comparisons of productivity, (unit) labor cost and industry-level
competitiveness for the manufacturing sector of China and India. We first provide a
comparison between India and China using a broad international perspective. We find
that China has increased its labor productivity to a level above that of India, but due to a
somewhat higher compensation level, China is still somewhat at a disadvantage in terms
of unit labor cost in manufacturing relative to India. In the second half of the paper, we
make an analysis of industry level differences in productivity, labor compensation and
unit labor costs at state and province level in the two countries from the mid 1990s to the
early 2000s. We find rapid declines in unit labor cost across industries and provinces in
China, but increases in many instances in India. This suggest that productivity and
compensation growth have become much more aligned across regions in China whereas
this is not (yet) the case in India. We relate these results to differences in the
implementation of market reforms between the two countries and removal of barriers to
resource mobility eradicating inefficient manufacturing activity.