Intercedent Insight – July, Manufacturing Wage Gap To Narrow
Intercedent projects that mid-tier manufacturing wages in China will reach approximate parity with Federal Minimum wage levels in the United States by 2017.
If this occurs, then there will likely be acceleration in the repatriation of low end manufacturing jobs from China to North America or they will move to lower-wage countries.
Companies that produce in China will be wise to include in their business planning higher land and electricity costs and potential increased shipping freight charges if oil prices continue to rise. These increases will be magnified due to the increasing strength of the RMB Yuan against the American dollar.
Intercedent advises companies to determine whether or not current sourcing in China will be economically viable moving into 2012 and 2013.
The capital required to move factories to new lower cost regions of China or bring new non Chinese suppliers on line could well be included in contingency business planning.
The enclosed table outlines the baseline assumptions:
|US Federal Minimum Wage/Hr (i)||$ 7.25||$ 7.75||$ 8.25||$ 8.75||$ 9.25||$ 9.75||$ 10.25|
|Exchange Rate (Rmb Y/$) (ii)||6.50||6.00||5.75||5.50||5.25||5.00||4.75|
|US Minimum Wage/Mo||$ 1,030||$ 1,088||$ 1,238||$ 1,313||$ 1,388||$ 1,463||$ 1,538|
|China Wage/Mo||Y 6,692||Y 6,525||Y 7,116||Y 7,219||Y 7,284||Y 7,313||Y 7,380|
|China Manufacturing Wage/Mo (iii)||Y 2,500||Y 2,825||Y 3,192||Y 3,607||Y 4,076||Y 4,606||Y,5205|
|China Salary On-Costs (40%)||Y 1,000||Y 1,130||Y 1,276||Y 1,443||Y 1,630||Y 1,842||Y 2,082|
|Total China Cost/Mo||Y 3,500||Y 3,955||Y 4,469||Y 5,050||Y 5,707||Y 6,449||Y 7,287|
|Total China Cost/Mo in US$s||$ 538||$ 659||$ 777||$ 918||$ 1,087||$ 1,290||$ 1,534|
|i) Assumes US$ Federal Minimum wage rise of US$ 0.50/Hr/Annum. NB: This is US$ 0.25/Hr/Annum higher than current US Congressional projections.|
|ii) Exchange rate is Intercedent forecast.|
|iii) Assumes wage increase for mid-tier manufacturing of 13%/Annum. NB: currently increasing at a higher rate.|