Citation
(2007), "Low costs get you so far ...", International Journal of Productivity and Performance Management, Vol. 56 No. 4. https://doi.org/10.1108/ijppm.2007.07956dab.003
Publisher
:Emerald Group Publishing Limited
Copyright © 2007, Emerald Group Publishing Limited
Low costs get you so far ...
A recent report from The Conference board (www.conference-board.org/) suggests the advantages of low-wage economies are not as great 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 (ulc) – 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 have to keep pace with fast-rising wages of skilled and semi-skilled workers or the “cost advantage” begins to erode.
Despite this, China and India still have the most competitive manufacturing ULC – at about 20 percent of that of the USA. The UK comes in at almost a third higher than the USA.