Era of super-cheap labour in Asia ending

Roberto Scaramuzza - Linkedin profile

Roberto Scaramuzza – Linkedin profile

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The time of “ridiculously cheap labour” in East Asia is over, the International Labour Organisation (ILO) said recently after evaluating a series of minimum wage hikes in the region, the latest one being China hiking minimum salaries in its manufacturing heartlands of Guangzhou and Shenzhen by 19 per cent on occasion of this year’s labour day on May 1.

Similar hikes in the minimum wage have been seen in the recent past throughout Southeast Asia. Average pay in Asia almost doubled between 2000 and 2011, compared with a 5 per cent increase in developed countries and about 23 per cent worldwide, according to the ILO.

Examples for recent hikes:

Thailand has set a minimum wage of 300 baht per day in January 2013.

In Jakarta, Governor Joko Widodo in 2012 approved a 44 per cent increase in minimum pay for workers, to 2.2 million rupiah ($226) a month. The national government is considering extending the plan across the country.

Malaysia introduced a base salary in 2012, benefitting about 3.2 million workers right before elections.

Cambodia raised minimum wages for garment workers in March 2013.

Vietnam’s latest minimum wage increase took effect in January 2013. Laos also hiked the wages, and Myanmar will release a new Minimum Wage Bill in 2013. Even Singapore is mulling a minimum wage law.

Adding to this, many currencies in the region have appreciated on the back of stronger GDP growth. The Thai baht, Philippine peso, Indonesian rupiah and Malaysian ringgit all have gained more than 16 per cent each against the US dollar in the past four years. China’s yuan was up 10 per cent.

All this has increased prices for goods manufactured in Asia. Many exporters are struggling with their shrinking ability to make cheap toys, clothes, furniture and consumer electronics. Rising wages and currencies have begun to take a toll on profit margins, especially as European and US importers are driving hard bargains because of recession and high unemployment in their home markets.

However, even with the salary hikes there is still a huge gap between wages in the East and West. For example, the average Philippine factory worker earned about $1.49 an hour in 2011, compared with $21.98 in the UK and $23.70 in the US. Economist say it will take years until Asian wages reach this level, but it will inevitably happen.