Mexico's Competitive Labor Costs Drive the Nearshoring Shift Since 2014

Mexico's economy and the peso are thriving lately, and many sources cite an increase in manufacturing facilities as multinational firms seek to expand or diversify production.

In the first quarter of this year, Mexico received $18.6B in foreign direct investment (FDI), which was 4.1% lower than in 2022.

But if we exclude two extraordinary amounts from last year — one coming from Televisa-Univisión's massive merger and another from Aeromexico's restructuring — FDI is up an incredible 48% in 2023.

The notion of 'nearshoring,' which describes the process of companies establishing production closer to their consumers, has recently gained much traction in the country. But wage data shows a powerful paradigm shift in global production — in 2015, the average wage for a manufacturing worker in China became more expensive for outside companies than for one in Mexico.

The latest figures suggest that a manufacturing worker in China now earns 43% more than a Mexican one. As global companies consider Mexico, its lower labor cost makes the country attractive.

Conversely, rising wages is an essential step towards improved well-being. So we can't celebrate cheap labor as a purely positive indicator. But the truth is that wages inside Mexico have increased more than this chart suggests.

This chart is somewhat elusive due to the dollar. In terms of Mexican pesos, there was a 67% increase in manufacturing wages from 2014 to 2021. But because the dollar has held so strong in the past decade, wages in USD have only increased by 9%.

So, in summary: From an outside investor's perspective, Mexican manufacturing labor is competitive in the global market — 43% cheaper than in China. At the same time, Mexican workers have enjoyed a 66% increase in wages at home.

345 manufacturing jobs in LatAm have been posted on LinkedIn in the past 24 hours. Half of them are in Mexico 🇲🇽