Understanding What Mexico’s Minimum Wage Increase Means for Manufacturers

Highly-skilled, cost-effective labor has been one of the main reasons manufacturers have chosen nearshoring to Mexico throughout the years. When compared to labor wages in the U.S. and China, Mexico has emerged as the most competitive in the market. Even with the news of a minimum wage increase, other cost benefits of operating in Mexico still keeps it high on the list of manufacturing strategies.

As of December 2020, Mexico’s National Minimum Wage Commission approved a majority vote that would increase the minimum wage by 15 percent in 2021. These wage changes improve the conditions for manufacturer workers in Mexico and are contingent upon where employees work. In general, the minimum wage increase equals approximately $7.16 USD per day. For laborers working along the border, the minimum wage is slightly higher, equaling approximately $10.78 USD per day.

While the increase is significant for skilled laborers, it’s still a cost-friendly solution for foreign manufacturers who want to reduce operational costs as a whole. Ultimately, the minimum wage increase in Mexico doesn’t change the fact that nearshoring to Mexico still remains more viable than operating in China.

In fact, most of the manufacturing jobs in states, such as Baja California, Sonora, Chihuahua, Coahuila, and Nuevo Leon were already paying salaries similar to the suggested $10.78 USD per day or even higher depending on the industry. Meanwhile, the instability regarding wages, taxes, and infrastructure in China has caused many to explore expanding to Mexico or at least, diversifying their manufacturing investments.

Cost-Friendly Operational Benefits Offset Minimum Wage Increases

Lower labor costs aren’t the only benefit of nearshore manufacturing in Mexico. Mexico’s close proximity to the U.S. equals less expensive shipping and transportation costs, in addition to fewer delays with regards to travel and timelines. Additionally, Mexico’s IMMEX program allows manufacturers to exempt the value-added tax on temporary imports, which they benefit from immediately when working with a shelter service provider. Furthermore, there’s a higher productivity rate in Mexico with a 48-hour work week before overtime is required.

The new minimum wage increase also aligns with the labor value commitment under the USMCA. The most recently updated regulations encourage economic growth by requiring 40-45 percent of auto content be made by North American workers earning at least $16 per hour. For an overview of wages per day by role, our Mexican Manufacturing Costs guide details what you can expect regarding fully burdened salaries, ranging from non-skilled operators to production managers. It’s a helpful resource to use when budgeting and planning for nearshoring to Mexico.

When taking into account the full picture of cost savings, the advantages of nearshoring to Mexico remain the same. Understanding what benefits and salaries will keep your company competitive will help you recruit and retain the best employees.

To receive a labor cost analysis and discuss a customized solution for your operation, contact IVEMSA today.

Sources:

https://www.reuters.com/article/mexico-economy-wages/update-2-mexico-to-raise-workers-daily-minimum-wage-by-15-in-2021-idINL1N2IX053

https://home.kpmg/us/en/home/insights/2020/12/tnf-mexico-reduced-income-tax-and-vat-rates-as-incentives-for-the-northern-and-southern-border-regions.html

https://www.business-standard.com/article/international/mexico-creates-special-zone-on-us-border-to-win-investments-cut-migration-118123000065_1.html