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Why Have Some High-Wage Countries Been Able to Hold Onto Manufacturing?

Posted By Jeff Moad, April 28, 2011 at 4:37 PM, in Category: Global Value Networks

Recently I came across an interesting chart, put together by the White House Office of Science and Technology Policy, that compared manufacturing labor rates in different countries with the percentage of GDP represented by manufacturing in those countries. (It's on page 6 of this Powerpoint deck).  What's interesting is that the chart doesn't show a direct correlation between manufacturing wages and manufacturng GDP. While China has the lowest level of manufacturing wages (as of 2010), and the highest manufacturing GDP, several countries have both high manufacturing wages and relatively high manufacturing GDP. Germany, for example, has average hourly manufacturing labor costs of $48.22, well above the US' $32.26. Yet, in Germany, manufacturing represents 20.5% of GDP, significantly above the 13% of GDP represented by manufacturing in the US.

Several other countries with higher manufacturing labor costs than US companies have also managed to retain larger manufacturing shares of GDP. They include Sweden, Austria, Belgium, Finland, and Italy.

The obvious conclusion is that, despite China's example, labor cost isn't the only key determiner of manufacturing success.

What explains the success of higher-wage countries such as Germany in retaining manufacturing? What can manufacturers and policy-makers in countries like the US learn from these countries with both higher wages and more robust manufacturing economies?



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Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit



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