Bank of America study – Mexico’s labor costs

By Adina Moloman

Sources: Reuters, Financial Times

April 2013, Bank of America presented a report by the chief economist for Merrill Lynch that estimated an important turnaround regarding Mexico’s labor costs, which are now 19.6% lower than China’s. Ten years ago Mexican average labor costs were then almost double than Chinese labor costs.

According to this study, lower labor costs in the thriving Mexican Maquiladoras has been giving Mexico a competitive advantage for at least five years. Youth is going to be a big factor, Mexico’s economically active population will grow by 20 percent in the next ten years which will put a downward pressure on wages.

In order to measure manufacturing competitiveness is not strictly about comparing just labor costs, but comparing the entire supply chains and other logistic advantages.

The Mexican competitive advantages include low wages, good product quality, lower transportation costs and Mexico’s free trade agreements with 44 countries around the world, which gives access to their growing market.

Many US companies are shifting production from China to Mexico and many others are considering this option due to Mexico’s positive macroeconomic numbers. These numbers portend that in the years to come there is the expectation of a Mexico’s increase in the US market share.

This positive numbers has to do with changes to Mexico Labor Laws and other Mexico’s reforms.

Mexico is experiencing a strong peso, with gains of more than 4 percent this year.  The peso has gained against the U.S. dollar, where the exchange rate is around 12 to 1 dollar.

This are good news for investors, but less attractive for Mexican workers.

Mexico is also looking to take advantage of the growing Chinese market and will increase the export of Mexican products to china.