Mexican Manufacturing Wages Stagnating? Says Who?

Commentary by Doug Donahue

A recent article in Supply Chain News cites findings from a Bank of America study, which shows that:

1) Labor costs in Mexico are 20% lower than in China and

2) Wages in Mexico have stagnated for a decade

The finding of wages being 20% lower in Mexico has been widely discussed in the media based on findings from several studies – there is little disagreement there. But I had to raise an eyebrow when I read that Mexican wages have stagnated over the past ten years. Why? Because at Entrada Group’s shared services manufacturing facility in Fresnillo, Mexico, it certainly isn’t the case. In fact, our wages have risen every year in peso terms.

Maybe it is true, statistically, that wage growth in Mexico has been flat. Or perhaps this is accurate on the average across the country – unfortunately the Supply Chain News article doesn’t go into detail about Bank of America’s findings. But anecdotally stagnant wages doesn’t perfectly jive with the situation in Mexico. In fact, even all the statisticians don’t agree: Bank of America says the average hourly wage in Mexico is $2.50, but the US Bureau of Labor Statistics pegs it at $4.50.

No matter whose numbers you believe, it doesn’t really matter to a single operation that is already established in Mexico. Any plant manager there would tell you wages are consistently rising – which makes sense. As directs and indirects gain seniority they are promoted and their wages go up. You don’t need to do a study to discover that. A company opening in Mexico that pays indirects $10 per day, just for argument’s sake, can’t expect to be paying those same costs in 3 years.

I agree with the article’s premise that there is a large pool of entry-level workers to draw from. But, at the same time, the article neglects to mention that salaries required to retain talented indirect workers is increasing. Savvy companies that have set up in Mexico and want to remain competitive are always adapting and implementing competitive manufacturing (such as Lean Manufacturing techniques) to stay ahead of the game. To paint a picture of these companies as sitting back and simply plucking out the best entry-level workers they can find seems short-sighted.

Source: Supply Chain News

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