Analyzing Baseline Wages for Direct and Indirect Labor in Queretaro

October 06, 2016

Wages are always a central topic when assessing possible business relocation to Mexico and its levels have been a major contributor to the country's rise as an offshoring/nearshoring powerhouse. According to the Instituto Nacional de Estadística y Geografía (INEGI), nominal manufacturing wages in Mexico averaged only $2.10 USD per hour in July 2016, which was actually down from $2.20 in April and well below the all-time high of $3.60 in December 2013. Bank of America Merrill Lynch has also estimated that hourly wages in Mexico are now 40 percent lower than in China.

All the same, there is not a one-size-fits-all way to assess wages in Mexico. Any given factory, such as one in Queretaro, likely relies on a mix of direct and indirect labor costs, which can vary widely by specific role and geographical region. Let's take a look at wages for direct and indirect workers in more detail.

Direct labor costs

Direct labor is usually defined as activity that is charged by the hour during the reporting period in which the employee in the production process. In a factory in Mexico, common direct roles include:

  • Unskilled worker: This title is for anyone without a high level of education nor the need for extensive training to do the job at hand.
  • Semi-skilled worker: A semi-skilled employee may have several years of experience. Pay is typically up to 30 percent higher than their unskilled counterparts, plus they may be bilingual and have lower rates of turnover.
  • Skilled worker: This group encompasses many occupations, including welders, machinists and clean-room CNC operators. With extensive experience in their fields, these workers may make twice as much per hour as a new unskilled worker.

There are two somewhat contradictory forces currently acting on direct wages in Mexico. On the one hand, the Comisión Nacional de los Salarios Mínimos has for the last few years approved national minimum wage increases. In 2016, it rose 4.2 percent. Queretaro specifically now has the highest wage levels of any city in Bajio, at $327 USD per month.

"Since 2013, the Mexican Peso has declined sharply in value against the USD."

On the other, beginning in 2013 the Mexican Peso has declined sharply in value against the USD, dropping the minimum wage from $64 to $6 per day. This has made it easier for U.S. manufacturers to shoulder the costs of operations in Mexico, even as they take on many new skilled workers to help with chemical and aerospace manufacturing.


Indirect labor costs

In factories, indirect labor is typically paid from a cost pool and is accounted for separately from direct labor. Common roles under the indirect banner include materials planners, quality control engineers and production managers. Across the board, indirect workers make much more than their direct counterparts, in some cases well over $20 USD per hour.

Manufacturing in Mexico requires a mix of direct and indirect labor.Manufacturing in Mexico requires a mix of direct and indirect labor.

Demand for engineers in particular has been high as many firms set up complex manufacturing operations in Queretaro and other sites in Mexico. The UNESCO Institute for Statistics found that Mexico graduated nearly 114,000 engineers in 2015, eighth of the 124 economies it assessed. This has made Mexico an attractive destination for investment, but companies have to weigh the cost of the indirect labor they will need to sustain their operations.

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