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Auto sector in particular feels the pinch of rising labour costs
LONDON--(BUSINESS WIRE)--Manufacturing labour costs in India have risen nearly 20 percent this year and will eclipse those in China as Indian workers have seen their wages increase sharply over the last year on the back of high inflation and a recovery in domestic demand, said IHS Global Insight in its latest “Global Manufacturing Compensation Watch” study.
China’s manufacturing labour costs are expected to rise 10 percent this year despite a slowdown in exports to the West as a result of the recession, the study showed.
“Labour costs are still rising fast in both markets. Rapid growth, productivity gains, and an explosion in outsourcing have put increasing pressure on wages in developing economies like India and China,” said Katherine Lewis, a director at IHS Global Insight and one of the authors of the study.
For multinational companies, understanding the labour costs associated with manufacturing facilities around the globe is a key issue when making investment decisions. India and China have long attracted foreign investment given relatively low risk profiles and their high levels of surplus labour.
Total labour costs in India's formal manufacturing sector are expected to average US $2.68 per hour in 2010 compared to China's US $2.51. Basic wages have risen fast in India over the last year, but still lag China -- India averages US $1.71 per hour, to China's US $1.82.
Benefits are key difference
The difference in overall costs between both countries is in benefits. India's benefit structure includes contributions to the Provident fund (social security), survivor insurance, pension contributions, state-mandated 13th month pay, and double pay for overtime.
“As basic wages rise, then benefits increase accordingly which can add considerably to companies’ costs, especially in India,” Lewis said.
According to the “Global Manufacturing Compensation Watch” study, benefits make up roughly 36 percent of labour costs in India. The figures would be even higher if employers did not avoid many of these costs by employing contract workers.
In China, benefits make up just over 27 percent of labour costs. This figure is heavily diluted by rural workers, however, who earn only 8 percent benefits. Urban workers can earn up to 47% additional pay in benefits. All the figures for India and China are based on national averages.
China's manufacturing sector is more heavily dependent on exports to the West, which have suffered in the wake of the global recession. India's economy, on the other hand, benefits from more diversity and domestic demand, allowing the rising wages to push total costs ahead of China.
Auto costs rising fast
Key manufacturing sectors, such as auto production, have already felt the pinch of rising labour costs. Auto manufacturing workers typically make more than the average manufacturing worker, and rising costs will continue to pressure manufacturers. IHS Global Insight estimates labour cost for auto workers in China is US$4.02/hour, roughly 60% more than the national manufacturing worker average. On the other hand, auto workers in India are compensated at roughly US$3.30/hour, just over 20% more than the national manufacturing average.
Chinese wages, which have been in the spotlight recently due to a series of high-profile factory strikes, are set to continue rising strongly in coming years - - putting total Chinese labour costs above India by 2013 despite lower benefit payments required from employers, Lewis said
By 2020, total manufacturing labour costs in China are expected to be 20% higher than in India as wages in China are expected to rise steadily whereas in India growth may be erratic.
“China's rising wage costs reflect higher productivity as a result of extensive investment in industrial infrastructure,” Lewis noted.
IHS Global Insight’s Global Manufacturing Compensation Watch will help businesses make more informed decision making regarding labour costs. The study provides the latest data from the top-50 manufacturing markets around the globe, including regional breakouts and rural versus urban earnings for key economies.
About IHS Global Insight
IHS Global Insight (www.ihsglobalinsight.com), an IHS company, provides the most comprehensive economic and financial information available on countries, regions and industries, using a unique combination of expertise, models, data and software within a common analytical framework to support planning and decision-making. Through the world's first same-day analysis and risk assessment service, IHS Global Insight provides immediate insightful analysis of market conditions and key events around the world, covering economic, political, and operational factors. IHS (NYSE: IHS) is a leading source of information and insight in pivotal areas that shape today’s business landscape: energy, economics, geopolitical risk, sustainability and supply chain management. Businesses and governments around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS employs more than 4,200 people in more than 30 countries around the world.
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Margaret-Anne Orgill, +44-20-3159-3411
IHS Press Desk