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- April 11, 2013 -

 
     
 

Supply Chain Graphic of the Week: Changes in Labor Costs in Low Cost Countries

 

Brazil and Hong Kong have Seen Steep Unit Labor Cost Growth in Past Decade, While Many Others have Seen Little or No Increases

 
     
 

By SCDigest Editorial Staff

 
 

 

Earlier this week, SCDigest published a story on how wage rates in Mexico have now fallen to 20% less than many areas of China, a complete reversal of a decade ago, when Mexican labor costs in US dollars were 188% more than Chinese wages. (See Rise in China Wages Now Means Labor Costs about 20% Lower in Mexico, New Study Finds.)

 

That article was based on a new report from the analysts at Bank of America, who also noted that although the US still imports more from China, Mexico's share of US imports over the last three years is growing almost as twice as fast as US Chinese import levels.

 

Also in the report is the chart below, which shows changes in unit labor costs (ULC) across a series low cost countries. It is an index, meaning it just represents the change in each country's wages, with all starting at an index value of 100 in 2003. That means it is not comparing labor costs among countries, just the change in each country's wage over the past decade. A country with a higher level of increase in the last 10 years could still have a lower absolute cost today.

 

 

Source: Bank of America

 

 

It a little hard to determine the exact numbers, but labor costs in Brazil, for example, are up an amazing 175% or so since 2003 (index value of 275 off of the base of 100). Labor costs in Hong Kong have risen about 150%.

 

Labor costs increases have been modest at best in the majority of the low cost countries, and are even lower today than they were in 2003 in Taiwan. Mexico had the second weakest wage growth in the period, basically flat with where labor costs were 10 years ago.

 

Although China's labor costs are not on this chart, they have risen rapidly, especially in the past few years, giving Mexico a powerful new advantage as a sourcing location not only for US companies but an increasing number of multi-nationals as well.

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