The wages of workers in Mexico are one of the most cost-effective aspects of nearshoring manufacturing operations to Mexico. In recent years, the hourly wage rate of workers in Mexico has dipped below that of China, making it one of the most popular places for manufacturing operations, particularly for products destined for the United States. In order to understand wages in Mexico, it is vital to consider the various factors that contribute to hourly wage rates, including recent changes to the minimum wage, the availability of the workforce and the skill of the workforce.
Recent Changes to Mexico’s Minimum Wage
When analyzing Mexico wages, it is important to first understand the baseline of all hourly wage rates in Mexico: the minimum wage. The deciding force behind the minimum wage in Mexico is the National Commission on Minimum Wages (“Comisión Nacional de los Salarios Mínimos” or CONASAMI ). On December 18, 2015, the National Commission on Minimum Wages approved the implementation of a general minimum wage increase of 4.2%. This general minimum wage increase became effective January 1,2016. This hourly wage rate increase raises the general minimum wage from $70.10 Mexican Pesos per day to $73.04 Mexican Pesos per day. This equates to an increase from approximately $4.08 in the United States Dollar to approximately $4.25 in the United State Dollar. The full list of all 2016 wages approved by the National Commission on Minimum Wages can be accessed here.
While the minimum wage may be set by the government, actually wages in Mexico are driven by market forces. As such, the actual daily wage in Mexico for unskilled workers is about 260 pesos per day, almost 4 times higher than the minimum wage. When the government raises the minimum wage, actual wages tend to rise as well.
Availability of the Workforce
Another factor to consider when assessing the average wage in Mexico is the availability of the workforce. The labor force in Mexico draws from a country of 129 million inhabitants. Of these 129 million inhabitants, a large portion are contributing to the workforce. Because of the steady birth rate in Mexico, the availability of workers is consistent, making it an ideal place to nearshore manufacturing operations.
Skill of the Workforce
Concurrently, it is important to analyze the skill of the workforce when conducting an analysis of wages in Mexico. The “Direct” workforce, otherwise known as “manufacturing labor,” in Mexico can be identified by three distinct skill categories. These categories are unskilled, semi-skilled and skilled direct labor. Below are the details on what each category means and how skill correlates to the wage earned.
- Unskilled direct labor in Mexico encompasses all employees that do not need any special skills to complete their daily work. In general, these employees are likely not bilingual, do not possess a high level of education and need only minimal skill and understanding in order to accomplish their daily tasks.
- Semi-skilled direct labor in Mexico includes employees that possess several years of experience in a specific trade or type of work. Generally, these employees will have 2-3 years of experience. In addition to just years of experience, semi-skilled employees may also differentiate themselves by having a talent or skill that allows them to surpass unskilled labor or a heightened ability to communicate by being bilingual. In general, semi-skilled direct labor garners a 20-30% increase in wage rate from that of an unskilled employee. In addition to this, the attrition rate is often significantly lower with semi-skilled employees compared to unskilled employees.
- Skilled direct labor in Mexico describes employees that have at least 5 years of experience in a specialized, or skilled, area of work. Due to the influx of Maquiladoras, the presence of skilled direct labor in Mexico has climbed dramatically in recent years and is expected to continue to rise. With their heightened level of skill, these employees can often earn 2-3 times that of a semi-skilled or unskilled employee due to their increased value and knowledge.
It is also important to understand that Direct labor is the primary attribute to lower-cost manufacturing in Mexico. Indirect labor, such as professional administrators, managers, engineers and supervisors can often cost as much as their U.S. counterparts. Manufacturers exploring an expansion or move to Mexico should consider this during the feasibility stage of their project
How NAPS Can Help
Wages in Mexico continue to rise as the National Commission on Minimum Wage re-evaluates and approves increases to the minimum wage rate and as the Maquiladora program remains strong. The increase in companies nearshoring their manufacturing operations to Mexico has been extremely beneficial to the workforce in Mexico and employs significant numbers of citizens, while also promoting an increase in skilled labor. Even with the increase in the minimum wage, the hourly wage rate of workers in Mexico is still significantly lower than that of the United States, which provides Maquiladoras with the opportunity to stimulate both the United States and Mexico’s economies, while saving on the cost of labor.
North American Product Sharing, Inc. (NAPS) specializes in helping companies successfully expand or move their production to Mexico by providing full administrative support and expertise in navigating compliance with Mexico and international business laws.