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September 20, 2000
China’s wages are 88 percent
lower than Mexico’s
By Patrick Osio, Jr.
HispanicVista.com The anti-NAFTA clamor in the U.S. is about jobs being sucked south to Mexico. In Mexico the clamor is about low-cost Chinese
products entering the U.S. market sucking the economic life of their medium and small manufacturers.
U.S. complaints about Mexico are based on a comparison of labor costs between the two countries. The U.S. has
the fourth most expensive labor force in the world with a weighted average hourly cost of $17.20, while Mexico’s weighted average hourly cost is $2.10 just above 12 percent of the U.S. average.
No doubt this is a
major difference. But in China the weighted hourly labor cost is a mere 25 cents, about 1.5 percent of the U.S. average, and about 12 percent of Mexico’s average.
U.S. companies with Mexican operations are less
affected by the labor cost differential with China, because their benchmark is Mexico versus China, not versus the U.S. The same does not hold true for Mexican-owned companies, whose only benchmark is Mexico versus
China costs.
Mexican small and medium manufacturing companies feel the full brunt of cheaper Chinese imports into the US as they are in direct competition. Adding to the Mexican’s problems is the high cost of
buying needed products and
components from the US as required by NAFTA’s country of origin rules.
During the first six months of 2000, U.S. exports to Mexico were $53.5 billion and to China $7.29 billion.
China is not dependent on U.S. made components, supplies or equipment to produce products it then sells to
the U.S. while Mexico is. Chinese exports to the U.S. in the first half of 2000, amounted to $43.4
billion deficit in favor of China of over $36.11 billion. Well over 50 percent of goods imported were in competition with U.S. or Mexican small and medium size manufacturers.
Mexican exports to the US were over
$65.44 billion for the same period. This produced a trade deficit in favor of Mexico amounting to over $11.91 billion, but over half the deficit was oil purchases, and the remaining deficit balance was mostly product
shipments from U.S. companies with
Mexican operations. Most of those products contain U.S. manufactured components assembled in Mexico.
Economic indicators proclaim NAFTA to be successful and of benefit to
U.S. large, medium and small exporting manufacturers, creating over one million jobs, far more than have been lost.
In Mexico, NAFTA’s major difference is that its giants have profited magnanimously while the
small and middle size industries have seen no improvement and in fact, as a majority are in worse conditions, partly because of the Chinese competition.
But U.S. industrial giants have zeroed in on entering the
potentially rich Chinese markets. This desire backed by their mighty political clout has won favorable U.S. import treatment for Chinese goods in hopes of winning market
access in China for the US auto, financial,
telecommunications, Internet and agricultural industries.
For U.S. National Security and national interest, arguments can be made as to the importance of having an economic prosperous Mexico, and at minimum there
should be imposed on China the same environmental and worker safety protection constraints as those imposed on Mexico by NAFTA’s side agreements. But the lure of China’s giant market has prevented introducing any such
arguments or conditions.
Like in the U.S., the long-range economic stability of Mexico will depend on the success of the small and medium size businesses. But Mexicans cannot expect help from the U.S., only their
government can come to their aid.
One example is Mexican labor laws that are some of the most stringent in the world. In the U.S., companies can hire workers on an hourly basis, work split shifts, or half days,
or half weeks or whatever is best for a company’s
competitive advantage.
In Mexico there is no hourly wage, it’s a daily wage and though workers can work up to six days a week, they must get paid for seven
days. There are no split shifts, no half days, no half weeks. Their laws make no allowance for
peak days, or peak periods.
Highest manufacturing wages by country:
Germany $31.88
Japan $23.66
France $19.34
U.S. $17.20
Canada $16.03
Australia $14.40
United Kingdom $13.77
Among the lowest:
Chile $2.20
Mexico $2.10
Poland $2.09
Hungary $1.70
Russia $ .60
India $ .25
China $ .25
Source: International Labor Organization (ILT)/La Frontera (8/24/00) |
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Any size company keeping an employee longer than 30 days must pay 90-day compensation in the event of a layoff, plus an additional 20 days for each year of
employment. There is obligatory medical coverage for employees and families, paid maternity leave, paid official holidays, paid vacations plus bonus, employer tax contributions for such things as low
income house construction, mandatory retirement contributions, and annual profit sharing. And on top of this, comes the newer labor safety and environmental restrictions, much needed, but they come at a high cost.
Competing with high labor cost countries diminishes the stringent wage laws impacts, but not when having to compete with China whose labor costs and standards are considerably lower or nonexistent.
The incoming administration of Vicente Fox should be encouraged to look into this situation, and contemplate introducing legislation granting exemptions to companies classified as small or medium size.
Otherwise, future Mexican industry will consist of the big nationals and foreign-owned companies. |
