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Tue, 29 July 2014 03:26:32
'Low-cost' economies not so cheap: US report
03 Oct, 2006 19:04:46
WASHINGTON, Oct 3, 2006 (AFP) - The low-cost allure of emerging economies for Western companies is overdone once the meagre productivity of their workers is factored in, a US business group said Tuesday.
The Conference Board said that fast-growing economies in China, India and eastern Europe do enjoy a comparative advantage over the United States.

But it said that advantage is narrowed once a full account is taken of unit labour costs, which measure the standard unit of output per worker across economies.

Bart van Ark, director of the Conference Board's international economic research programme, said the report was a "critical lesson" to Western companies seeking to take advantage of lower costs in emerging economies.

He said "productivity gains from new technology and innovation have to keep pace with often fast-rising wages of skilled and semi-skilled workers, or the 'cost advantage' begins to erode".

"The key for emerging economies is to promote productivity through technological change and innovation to match wage increases which will undoubtedly happen in a rapidly growing economy."

Billing the study as the first by a private-sector group to analyse standardised labour costs globally, the Conference Board said that Mexico, for example, loses nearly all its competitive advantage if productivity is factored in.

Mexico's total wage costs were 11 percent of the average US level in 2002.

But because Mexican workers produce 10 times less than Americans per hour, the unit labour costs came out nearly the same.

India and China enjoy the biggest comparative edge because their wages are so low -- less than three percent of the level paid to US workers in manufacturing.

Even with lower worker productivity factored in, unit labour costs in India and China are on average 80 percent lower than those in the United States.

But the report also noted that those averages were for all manufacturing companies.

US and other foreign companies typically pay their local workers much more than domestic ones.

Newer and poorer entrants to the European Union such as the Czech Republic, Hungary and Poland have seen their comparative advantage wane as wages have risen faster than their workers' productivity.

In Poland, for instance, industrial workers earn about 13 percent of the average US salary but their unit labour costs come out much higher at 73 percent.

"These differences underscore the challenge that even very low-wage countries have in fostering productivity growth that keeps pace with or exceeds rising wage levels to preserve their relative global competitive position," van Ark said.
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