U.S. and Mexico Labor Cost Comparison: An Overview

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. Furthermore, in Mexico’s manufacturing sector, the average age of workers is 35, which is another benefit for U.S. and other global companies as they aim to grow a sustainable workforce. 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, in addition to state and federal taxes. On average, the salary of a fully burdened employee is $6.29/hour for a non-skilled worker, $6.96/hour for a semi-skilled worker, and $8.22/hour for a skilled worker, compared to $23/hour in the U.S., plus benefits. Additionally, Mexico recognizes a 48-hour work week, resulting in higher productivity, 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.

Hiring for these positions individually is also time-consuming and could potentially lead to ineffective communication and collaboration, which could derail a company’s production timeline.

Healthcare Expenses

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 has 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 $3,500 annually through the federal government’s public health system.

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 ranges from the U.S. equivalent of $690-$1,075 per month, and in the U.S. it’s closer to $3,900 USD. Therefore, foreign manufacturers can still provide their workers with comfortable living wages but at a comparatively lower expense.

Building a Customized Cost Analysis

These estimates 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.

There are several factors to consider when evaluating costs including:

Specialized Labor

Certain industries require employees with advanced technical skills. Specialty equipment for medical device manufacturing, aircraft parts and equipment, and electronics assembly are some of the areas that require specific experience in welding, engineering, and working with complex assembly.

Even a potential 25% increase in duties should keep Mexico a highly competitive manufacturing alternative in industrial sectors that require specialized roles, when the need is for 50 or more people, since fulfilling these roles is substantially more expensive in the US

Regional Differences

Salaries in Mexico range depending on the area. high-traffic manufacturing areas like northern Mexico have higher labor costs than central or southern Mexico, though all areas are still significantly less than labor rates in the U.S. This is due to the higher demand and skill level available in these larger manufacturing areas which makes labor in these areas extra competitive.

Company Size

Medium- or large-sized companies with factories already in Mexico typically benefit the most from expanding within the country, as they require a larger workforce than smaller companies.

Additionally, the complexity of the goods being produced is a key factor. Manufacturing more complex products that require skilled or specialized labor, along with engineering support, is more competitive in Mexico compared to producing simple products that only require basic assembly or minimal transformation processes.

Having an estimated headcount and type of production required can help determine the exact cost savings and inform whether or not Mexico makes sense as a manufacturing partner.

Market Proximity

Due to the proximity to the U.S. market, many global manufacturers still rely on labor in Mexico to drive quicker delivery time compared to China or other outsourced manufacturing. Also, lower transportation costs can offset the expense in other areas. Additionally, the availability of qualified industrial workers in the U.S. is declining, which means high-demand roles are attached to salaries that are not feasible as a long-term manufacturing solution.

A shelter partner can help you save in all areas of production, including labor costs. To determine areas of savings when manufacturing in Mexico, contact our team today.

Sources:

https://www.businessnewsdaily.com/16562-cost-of-hiring-an-employee.html

https://www.healthaffairs.org/content/forefront/employer-health-insurance-premiums-steady-2022

https://www.internationalinsurance.com/health/north-america/mexico.php

https://www.globallivingwage.org/countries/mexico/

https://www.economia.gob.mx/datamexico/en/profile/industry/manufacturing