How Businesses Can Take Advantage of Mexican Labor Rates05.01.18
The number one concern all our clients share is a desire to reduce costs—which is why they move their manufacturing operations to a country like Mexico. Labor rates in Mexico are much lower than those in the US, and labor is where companies see the most cost savings. However, there are some things you should know so you can fully take advantage of the lower costs.
Mexican Labor Rates vs. the US
Companies in the US commonly see the reported minimum wage in Mexico (which, as of December 2017, is 88.36 pesos per day, or about $4.70) and use that number as a starting point when calculating costs. What they don’t realize is that the Mexican manufacturing job market is very competitive—for employers. Especially in border cities like Mexicali or Tijuana, foreign companies need to be prepared to spend a little more on wages in order to attract top candidates.
These are the current average wages for IVEMSA clients:
Basic operator: $15-16/day
Wages in Mexico are calculated per day, not per hour, and the numbers above include all the benefits mandated by the Mexican government, which includes vacation pay, an annual Christmas bonus, and others. Because of this, it’s challenging to show direct cost comparisons for Mexican workers and US workers, but you can see that even these more competitive wages are lower than average costs in the US.
Specialties, Experience, and Education
Mexico has been known for its automotive manufacturing for decades. More recently, high-end manufacturing, including medical devices, aerospace, and IT/software development have been growing rapidly. The auto sector has seen double-digit growth since 2010 and the aerospace industry has grown even faster.
The average Mexican factory worker tends to be younger than the average US employee. The median age in Mexico in 2017 was estimated at 28.3 years, while the US median age was 38.1 years, according to the CIA Factbook. In 2016, 32.2% of Mexico’s population was between the ages of 20-39 (by contrast, that age group made up 27.2 of the US population). As the manufacturing sector continues to grow and drive a large part of the Mexican economy, the Mexican government and its educational institutions have invested in Science, Technology, Engineering, and Math (STEM) programs to ensure that there are plenty of qualified candidates for these jobs. Some universities and vocational school work directly with major employers in their regions to ensure that students graduate fully trained and ready to work as an operator, technician, or engineer. In 2015, nearly two-thirds of new university students chose science-related fields of study. Students also understand that proficiency in English will help them in the job market. Nearly all engineering candidates are bilingual.
Competing for Candidates
In most parts of the country (especially the larger border cities where foreign companies are likely to set up operations), offering minimum wage won’t cut it. Competition varies between cities and regions. The wages you can offer also depends on your industry. A good shelter provider will track trends in the job market in various regions and will advise you on the best way to make your company attractive to job seekers. At IVEMSA, we’re also active with INDEX, the national maquiladora association, and other associations that share information about local markets.
Reduce Turnover Rates
Due in part to the high competition, some companies who move to Mexico see high turnover rates in their workforce. Mexican labor law is seen as being protective of workers, and the Mexican government mandates certain benefits that are more generous than you might see in the US. This means that just offering a standard benefits package may not be enough to attract and keep top talent.
Just like in the US, creating a positive work environment and cultivating a strong company culture will go a long way to make your workers feel comfortable and loyal to your company.
Our clients often offer perks and bonuses like:
- Health and wellness programs for workers and their families
- Discount programs with local restaurants, shops, and museums in the city
- Holiday parties or employee appreciation days (especially during, for example, the FIFA World Cup or major local sporting events)
- Education assistance or additional training
- Transportation stipends
- Cafeteria service or meal vouchers
- Recognition of stellar employees
You can also offer attendance bonuses to reduce absenteeism or productivity bonuses for meeting or exceeding certain goals or quotes. Strong communication is also key. We recommend our clients have a weekly or monthly all-hands meeting where employees are kept up-to-date on company goals and have a chance to discuss issues or concerns with their managers.
Currency Exchange Rates
Exchange rates are largely out of your control, but it’s something to pay attention to—in 2014 the exchange rate was 13 pesos to the dollar, and now it’s 18 pesos to the dollar, which means US companies are actually paying less in dollars now than they were two years ago. This is another factor that a good shelter provider will track for you and advise you if you need to make adjustments based on the exchange rates.