One of the critical factors that companies consider when offshoring manufacturing to China or Mexico is the cost of labor. Labor costs used to be very low a few years ago when China was emerging as the factory floor of the world. That is no longer the case as labor costs there have been increasing consistently year after year. As a result, cost of labor is cheaper in Mexico than in China. The following chart shows the manufacturing labor costs in China and Mexico from 2016 to 2020:
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Source: Manufacturing in Mexico vs China, Mexcentrix Strategic Solutions
An excerpt from the above article:
Within the most important factors taken into account when performing analysis for expansion of operations is the labor cost. One of the main competitive advantages of Mexico and China is their low labor cost. Which according to Statista the average manufacturing labor cost per hour in China is 6.5 USD per hour with an increase of 13% from the previous year. While in Mexico it is 4.82 USD per hour, with an increase of only 4% from 2019 (Statista, 2020). Which shows a trend of a higher increase in wages in China compared to Mexico.
The above mentioned year per year increase has also been impacted by the MXN – USD exchange rate, the devaluation of the MXN peso against the USD in the last years have reduced the effective labor rate inflation.
It is important to take into account that the manufacturing labor costs for both countries are just an average as a means of providing insight, as labor costs will vary per region, workforce skills, and level requirements, among others.
Furthermore, the minimum wage in Mexico is $123.22 MXN per day in almost all regions of the country, except in the Northern Border which is $185.56 MXN per day with an average minimum wage per month of $220.9 USD compared to $368.5 USD in China.
Lastly, Mexico is considered to have greater productivity with 48 hours work week compared to a generally 40-hour workweek, in which after this overtime must be paid.
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