Mexico's Rising Labor Costs Drive Canon, Other Companies Away
This is somewhat troublesome, don't ya think?
Mexico City, April 1 (Bloomberg) -- Canon Inc. gave all 700 workers at its Tijuana, Mexico, plant a raise last year that was double the rate of inflation. The Japanese company shut the ink- jet printer factory in March, citing rising labor costs, and shifted operations to Vietnam.
Consumer electronics manufacturer Casio Inc. closed a musical instrument factory last year, also in Tijuana, and now makes them only in China. Wells Lamont Industries, a Niles, Illinois-based work-gloves maker, shuttered its Mexican plant at the end of September last year, after 18 years in the country and shifted production to China.
``A laborer in Asia is $2 a day, compared with $20 in Mexico,'' said Harley Kaplan, president of Wells Lamont.
Salary increases that outpaced the rate of inflation for three straight years and a strengthening currency are transforming Latin America's largest economy from a low-wage center to a middle- wage one. Mexican officials say they will try to offset the loss of low-paid jobs by attracting manufacturers seeking experienced workers close to the world's largest economy.
Since Mexico signed the North American Free Trade Agreement with the U.S. and Canada in 1993, it has lured about $13 billion a year in direct foreign investment. Most came from U.S., European, Korean and Japanese companies that sought to take advantage of cheap labor costs.
Between 1993 and 1996, the cost of hiring a Mexican worker fell almost by half, as the 1994 peso devaluation made Mexican salaries cheap and the ensuing recession kept a lid on wage increases. In 1995 the minimum wage in Mexico, on which most pay packages are based -- although few workers make that little -- was $2.90 a day. This year it is $4.25.
The Border
Mexicans flocked to work at maquiladoras, factories near the Mexican-U.S. border where duty-free imported components were assembled into products that were then sold abroad. Low salaries, and the free-trade accord, helped double the number of maquiladora workers to 1.3 million between 1992 and 2000.
Now, labor costs are rising. An index compiled by Mexico's National Statistic Institute shows that Mexican labor costs rose 54 percent since 1997 and fell 9 percent in the U.S. and 13 percent in Japan. The index calculates the cost of hiring a worker, including taxes and social security pensions, and adjusts it for changes in the exchange rate.
``From 1999, you've been in a period where you've been losing competitiveness at a significant pace,'' said Miguel Palomino, a Latin America economist at Merrill Lynch & Co. Inc. in New York. ``The huge gains made at one point have largely been lost.''
Last year, maquiladora employment levels fell for the first time since 1982. About 250,000 jobs were lost, and 253 maquiladoras shut down, according to the government's statistics agency, as higher labor costs and a recession in the U.S. forced many companies to streamline operations.
Mexico vs Asia
On average, Mexican manufacturing workers received a 10.3 percent pay increase in 2001, compared with an inflation rate of 4.4 percent. And at the same time the peso's gained 5 percent against the U.S. dollar. By comparison the Japanese yen weakened 13 percent, the Indonesian rupiah lost 3 percent of its value and the Taiwan dollar fell 5 percent.
``The difference in competitiveness between Mexico and Asia is very big,'' said Manuel Rios, manager of the plant Cannon shut down.
The exodus, and concern about the pace of the recovery in the U.S. worries policy makers, who question whether Mexico will resume the 5 percent growth it experienced for most of the second half of the nineties.
Sergio Tagliapetra, Baja California's economic development secretary, said Mexico's days as a low-cost labor paradise are numbered. ``We know we can't compete with China,'' he said. |
