Real costs of low-wage economies

While low-wage economies may seem attractive at first glance, a new report by
The
Conference Board suggests the advantages are not as stark as they first
seem.

Research from the economic think tank paints a true picture of the value of
low-wage countries when other factors such as productivity are taken into
account.

To try and make the country comparisons easier, The Conference Board used
unit labour cost – the average labour compensation per unit of output – as a
comparison.

According to the research, after adjusting for productivity gaps, the cost
effectiveness of emerging economies “is not as strong as suggested by wage
differences” because the low wages go hand-in-hand with low productivity.

“One critical lesson is that productivity gains from new technology has to
keep pace with fast-rising wages of skilled and semi-skilled workers or the
‘cost advantage’ begins to erode,” says The Conference Board’s Bart van Ark.

Despite this, China and India still have the most competitive manufacturing
ULC – at about 20% of that of the US. The UK comes in at almost a third higher
than the US.