By SCMR Staff · October 20, 2022
The Reshoring Institute has published major research on global labor rates in 12 countries, comparing production workers, machine operators, manufacturing supervisors, and managers. And the data shows that China can no longer be considered a low-cost labor country, as its labor rates have significantly increased. The lowest-cost countries in the study are now India, Mexico, and Vietnam. While there are even lower-cost areas of the world, the Reshoring Institute focused its study on where most manufacturers are moving to now, after leaving China.
Despite significantly higher labor rates in the U.S., manufacturers are also coming back to America. “To be competitive in world markets and at home, U.S. manufacturers must automate production and redesign processes to extract labor costs, and make manufacturing more efficient,” said Rosemary Coates, executive director of the Reshoring Institute. “When comparing manufacturing in America versus other countries, you must consider the total cost of ownership and include all costs such as logistics, quality, time-to-market, import duties, inventory carrying costs, and geopolitical risks,” she said. “Our clients are often surprised to find that when all costs are considered, American manufacturing can be competitive.”
The pandemic changed almost every aspect of life around the globe, including how and where we manufacture. With worldwide shortages and supply chain disruptions, companies have changed how to source and manufacture parts, sub-assemblies, and finished products. A major factor in these changes is how much manufacturing workers are paid.
“Our study has revealed that where in the world to manufacture is a complicated decision and involves a comprehensive analysis of labor costs, productivity, geopolitics, risk, where customers are located, and how markets are growing. With labor rates in China doubling over the past few years, companies are now considering moving back to America,” said Ms. Coates.
With new funding and tax incentives now available through the Chips and Science Act, the Inflation Reduction Act, and the Build Back Better Infrastructure Bill, reshoring and expanding operations in America have rapidly become popular and economic choices for American manufacturers.
October 20, 2022
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FAQs
The research concluded that China can no longer be considered a low-cost country, as its labor rates have significantly increased. The lowest-cost countries in the study are now India, Mexico, and Vietnam.
Is China a low cost country? ›
China was initially one of the lowest labour cost countries known. However, due to the rising demands of people and the increase in the cost of goods, China is no longer regarded as the 'cheapest' country to manufacture goods anymore. China is now deemed as less competitive compared to other countries.
Does China still have a labor cost advantage? ›
Due to relatively low labor costs, China's manufacturing industry has a competitive advantage on the international stage (Banister 2006). However, studies in recent years have shown that China's competitiveness in terms of labor costs appears to be waning (Albaladejo 2004; Shenyong and Zhouzhou 2007).
Which country has the lowest Labour costs? ›
- India. #1 in Cheap manufacturing costs. ...
- China. #2 in Cheap manufacturing costs. ...
- Vietnam. #3 in Cheap manufacturing costs. ...
- Thailand. #4 in Cheap manufacturing costs. ...
- Indonesia. #5 in Cheap manufacturing costs. ...
- Bangladesh. #6 in Cheap manufacturing costs. ...
- Philippines. #7 in Cheap manufacturing costs. ...
- Cambodia.
China's cost advantage derives from large currency devaluations that preceded the establishment of a de facto peg around 1995, and rapid productivity growth in the period since 1995.
What is the labor problem in China? ›
“The long-term problems underlying these disputes in China are poor enforcement of labor protections and a complete lack of independent and effective labor unions,” Slaten told VOA in an emailed statement.
Is it cheaper to live in China or the US? ›
The cost of living in China can vary by location and type of purchase. On average, China's cost of living is 45% lower than the U.S according to Numbeo. Rent in China is 60% lower than the U.S. on average. But the cost of items like cars and private school tuition are actually very similar.
Why is China so cheap? ›
Due to its enormous industrial scale, China is known for producing goods at low costs and in large quantities due to its unmatched cost advantages and efficiency. The idea of mass manufacturing is at the core of scale economies.
How much is labor in China compared to the US? ›
In 2018, manufacturing labor costs in China were estimated to be 5.51 U.S. dollars per hour. This is compared to an estimated 4.45 U.S. dollars per hour in Mexico, and 2.73 U.S. dollars in Vietnam.
Does China have an advantage in the world economy? ›
From 1979 to 2020, China's compound annual GDP growth was 9.2 percent. Leading the world in both scale and extent, China has been the largest contributor to world economic growth since 2006, making an average annual contribution of more than 30 percent.
Mexico's labor costs make it cheaper to manufacture in Mexico than in China as a result. According to Statistia, in 2018 manufacturing labor costs in China were estimated to be 5.51 U.S. dollars per hour. This is compared to an estimated 4.45 U.S. dollars per hour in Mexico, and 2.73 U.S. dollars in Vietnam.
Does China have skilled labor? ›
As a country with more than 200 million rural migrant workers, China has also been building up its pool of skilled personnel by improving the skills and quality of its rural migrant workers and turning them into skilled workers.
What is the minimum wage in China? ›
Minimum wages in China continue to rise. As of February 19, 2024, Shanghai has the highest monthly minimum wage among 31 provinces (RMB 2,690/US$370 per month), and Beijing has the highest hourly minimum wage (RMB 26.4/US$3.7 per hour).
Which country has the best labor rights? ›
5 Countries with the Best Employment Laws
- Austria. Even though Austria does not have any minimum wage law, some sectors such as domestic and education, provide a minimum wage to their workers. ...
- Belgium. Belgium is another country that helps protect its workers. ...
- Denmark. ...
- Finland. ...
- Germany.
Besides Denmark, you'd find high labor costs in countries such as Luxembourg, Belgium, Sweden and the Netherlands. The nations with the lowest rates include Romania, Lithuania, Hungary and Latvia.
Is China a labour intensive country? ›
China is the largest developing country. In China, labor-intensive manufacturing undertakes a large amount of low-end labor employment. However, owing to the current uncertainty in the international and domestic environment, employment is facing greater challenges.
Why is China not economically free? ›
China's arbitrary and often-revised business-related rules and labor codes subject the private sector to the whims of the Communist government. The state-controlled financial sector continues to undercut efficiency and productivity through extensive use of subsidies and credit controls.
Is China a labor abundant country? ›
Answer and Explanation: Heckscher-Ohlin model says that a country will export that good which uses that factor intensively which is abundantly available in the economy. According to the given information, US is a capital abundant country and China is labor abundant.
