U.S. and Mexico Labor Cost Comparison: An Overview05.24.23
The evolution of the manufacturing industry has advanced due to sophisticated technology and automation which can streamline certain processes. Though, despite improvements, manufacturing still requires skilled labor which accounts for a high percentage of the total operational costs.
Therefore, it’s no surprise that meeting budgetary needs is largely driven by reducing labor costs. Because of this, many U.S. and other foreign manufacturers previously focused efforts on opening production facilities in China, where cheap labor was common. However, the growing unreliability of manufacturing in China, in addition to their rising labor costs have made it a less appealing solution than it once was.
Instead, nearshoring to Mexico has become the competitive advantage with close proximity to the U.S. and a cost-effective, industrial labor pool. Manufacturing has always been a staple of Mexico’s economy, and the country has invested in its workforce for years by providing higher education and advanced training. This instills confidence when hiring and without the same spend required in other countries.
Here’s a closer look at the specific areas where manufacturers can save:
Salary and Benefits
In Mexico, salaries are calculated to automatically include benefits, such as paid time off, profit-sharing, and end-of-year bonuses. On average, a fully burdened direct employee costs $5.30/hour compared to $23/hour in the U.S., plus benefits. For a production headcount of 50 employees, this equals a savings of $1,730,560 annually, based on Mexico’s 48-hour work week compared to the typical 40-hour work week in the U.S.
Also, when working with a shelter company, manufacturers save on costs, which can reach up to 50%-70% on average salaries per employee. A shelter’s built-in HR team takes on all aspects of recruiting for the positions a company needs. This includes job advertising, background checks, hiring, training, and onboarding.
In addition to how much less labor costs are in Mexico vs. the U.S, there are also less expensive healthcare plans as well. The rise in healthcare costs have plagued many U.S. employers. Annual family premiums for employer-sponsored health insurance average over $22,000 per year. Whereas, Mexico offers more affordable options, equaling approximately $5,900 annually for comprehensive health insurance.
Cost of Living
Meanwhile, the lower labor costs are also offset by the lower cost of living in Mexico compared to the U.S. According to the Global Living Wage Coalition, the living wage in Mexico averages the equivalent of $677 USD to $917 USD per month, and in the U.S. it’s closer to $3,900 USD. Therefore, foreign manufacturers can still provide their workers comfortable living wages but at a comparatively lower expense.
Building a Customized Cost Analysis
These average give manufacturers a general idea of cost savings when nearshoring to Mexico versus manufacturing in the U.S. However, to get a more granular view, a shelter company like IVEMSA can provide a customized cost analysis that determines specific labor needs and expenses.
A shelter can help you save in all areas of production, including labor costs. To determine are of savings when manufacturing in Mexico, contact our team today.