"As basic wages rise, then benefits increase accordingly which can add considerably to companies’ costs, especially in India"
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
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
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
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