For decades, U.S. automakers outsourced jobs to Mexico because of its comparative advantage in cheap and abundant labor, but now, this trend is in overdrive.
CNN reported in March, 2016, that since the year 2000, the US lost five million manufacturing jobs to Mexico. Fiat Chrysler said in July, 2016, that within a year the company will stop most all manufacturing in the US and will possibly move its operations to Mexico, reports USA Today.
This trend is now becoming so popular that large car companies like Ford, Toyota, and BMW are switching to more automated factories and means of production because they cannot hire enough workers to fill demand.
Major automotive manufactures pledged a combined $15.8 billion to build new factories and streamline means of production. Pledges also include retraining programs and incentive packages and offering workers “new cowboy boots,” reports The Wall Street Journal.
Not all auto companies are playing up this problem, or even acknowledging there is one. Volkswagen executives have said that “there are enough people willing and eager to work,” the Journal reports. According to company application numbers, in excess of 230,000 workers applied for some 4,200 jobs.
In fact, labor is not the problem, according to a study by the Center for Immigration Studies, and instead is the absence of cheap or illegal labor. The unemployment rate for domestic laborers in the first quarter of 2016 was 5.5 percent, a figure still higher than the unemployement rate in the same quarter of 2007. Some 28 percent, or 48.5 million, working-age natives were discouraged laborers—those that are unemployed but no longer looker for work.
If the number of discouraged laborers is combined with the total number of unemployed, 55.4 million working-age U.S. citizens are currently without work. To put that figure in perspective, 41.4 million were without work in the same quarter of 2007.
There are also 6.2 million U.S. citizens and immigrant laborers working part-time, but actively seeking full-time employment.
Experts have said that this supply gap in labor is just the “tip of the iceberg,” noting that, “labor rates going up will be unavoidable.” Experts also hint that in order to attract and maintain laborers, companies will have to raise the hourly wage. The current minimum wage in Mexico is around four dollars per day, and in contrast to an hourly wage in manufacturing of $1-3 per hour worked. The average hourly wage for manufacturing in Mexico is $2.2 dollars an hour, according to analysis by Trading Economics.
Competition is so prevalent that workers jump from factory to factory within a matter of months to get better pay and incentive packages.
In 2014, auto-manufacturing accounted for 6 percent of Mexico’s GDP and 18 percent of its manufacturing production, according to the International Business Convention for the Automotive Industry. The industry is expected to produce 4 million automobiles by 2018 and 5 million by 2020.
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