American Axle Strike Settlement Drives Tier 1 Labor Cost Inflation
The UAW contract at Three Rivers raises top wages 36 percent, signaling higher component prices for truck assemblers.
Manufacturing Labor Rates
Production Metric
Financial measurements of the cost of one hour of work in a factory setting allow companies to compare the efficiency of different regions. Manufacturing labor rates include the base wage paid to the worker and the additional costs of social security, health benefits and paid leave. These figures are a primary driver in the decision of where to locate a new production facility.
Regional Variance
Large differences in the cost of labor between developed and developing nations create a powerful incentive for the offshoring of production. Analysis of manufacturing labor rates shows that countries in Southeast Asia often provide a lower cost alternative to factories in North America or Europe. However, these lower rates must be balanced against the quality of the infrastructure and the skill level of the workforce.
Higher rates in some regions are often justified by the increased productivity and the proximity to the final consumer. Companies track these trends to decide when it is time to move production to a new location.
Expense Efficiency
Managing the total cost of production requires a focus on more than just the hourly pay of the employees. Successful companies use manufacturing labor rates as one part of a larger calculation that includes the cost of energy, raw materials and transport. Automation is often used to reduce the reliance on human labor in regions where the rates are rising quickly.
This investment in technology can lower the per unit cost of a product even when the hourly wages remain high. The long term trend in the industry is toward a more balanced approach that considers both cost and reliability.