Myanmar, Bangladesh, Cambodia, Djibouti have world’s lowest labour costs

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Myanmar workersA new study shows that three Asian countries, Myanmar, Bangladesh and Cambodia, and the small East African nation of Djibouti, have the world’s lowest labour costs measured as a combination of wages, employment regulations, social security contributions and labour productivity. The study was released in February 2015 by Verisk Maplecroft, a UK-based risk analysis and strategic research firm, and ranked Myanmar 171, Bangladesh 170 and Cambodia 169 on a list comprising 172 economies. Myanmar is only beaten by Djibouti which comes in last.

The 10 highest labour-cost countries in the study are all in Europe, with the top five most expensive being Italy, France, Belgium, Spain and Finland.

As for East Asia, the study is interesting for showing how the labour cost environment has changed over the years. China, which used to be among the cheapest countries in the world in terms of labour costs up until the late 1990s, has massively lost ground in the low-cost manufacturing space due to rising wages and higher social security contributions by employers. As a result, China is now placed 64 in the global labour costs ranking, way ahead of, for example, Thailand, which occupies rank 93 on its way to become a middle/income country.

Rising wages have contributed to the changes: The average monthly salary in China is now around $450 plus 20 per cent contribution to social security, while in Myanmar, Cambodia and Bangladesh average salaries are all significantly lower with no social security component to be paid. In Cambodia, the minimum wage for textile and shoe workers, which make a huge chunk of the entire workforce in the country, has been set at $128 monthly as of last November. For other industrial sectors there is no minimum salary regulation.

In Bangladesh, the minimum wage for garment workers has been raised by 77 per cent to $68 per month in 2013, while the monthly wage for all economic sectors not covered by industry-specific wages remains at a meagre $19. In Myanmar, there is no minimum wage regulation at all although talks and surveys are ongoing in order to introduce basic wages. Currently, public employees receive at least $60 monthly, and day labourers can count on $1.70 to $2 a day plus subsidies and allowances in some cases.

However, the authors of the study point out that while cost competiveness is attractive for many investors seeking countries to manufacture goods cheaply, this benefit comes with risks related to poor working conditions, health and safety, child labour, human trafficking and possible strikes as it happened in Cambodia’s garment industry in the past years.

“The true cost of business in emerging economies is more than the direct expenses associated with the labour force,” says Charles van Caloen, Senior Analyst at Verisk Maplecroft, adding that “It is essential for companies to understand and price in risks such as strikes, disruptions and poor worker health when making market entry or strategic sourcing decisions.”

However, in the long run – as a normal development cycle – low-cost countries will attract more and more investment that, in turn, will drive development and increase productivity and wages, as it happened with China, and investors looking for low-cost sourcing will likely move on, the study suggests.

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Reading Time: 2 minutes

A new study shows that three Asian countries, Myanmar, Bangladesh and Cambodia, and the small East African nation of Djibouti, have the world’s lowest labour costs measured as a combination of wages, employment regulations, social security contributions and labour productivity. The study was released in February 2015 by Verisk Maplecroft, a UK-based risk analysis and strategic research firm, and ranked Myanmar 171, Bangladesh 170 and Cambodia 169 on a list comprising 172 economies. Myanmar is only beaten by Djibouti which comes in last.

Reading Time: 2 minutes

Myanmar workersA new study shows that three Asian countries, Myanmar, Bangladesh and Cambodia, and the small East African nation of Djibouti, have the world’s lowest labour costs measured as a combination of wages, employment regulations, social security contributions and labour productivity. The study was released in February 2015 by Verisk Maplecroft, a UK-based risk analysis and strategic research firm, and ranked Myanmar 171, Bangladesh 170 and Cambodia 169 on a list comprising 172 economies. Myanmar is only beaten by Djibouti which comes in last.

The 10 highest labour-cost countries in the study are all in Europe, with the top five most expensive being Italy, France, Belgium, Spain and Finland.

As for East Asia, the study is interesting for showing how the labour cost environment has changed over the years. China, which used to be among the cheapest countries in the world in terms of labour costs up until the late 1990s, has massively lost ground in the low-cost manufacturing space due to rising wages and higher social security contributions by employers. As a result, China is now placed 64 in the global labour costs ranking, way ahead of, for example, Thailand, which occupies rank 93 on its way to become a middle/income country.

Rising wages have contributed to the changes: The average monthly salary in China is now around $450 plus 20 per cent contribution to social security, while in Myanmar, Cambodia and Bangladesh average salaries are all significantly lower with no social security component to be paid. In Cambodia, the minimum wage for textile and shoe workers, which make a huge chunk of the entire workforce in the country, has been set at $128 monthly as of last November. For other industrial sectors there is no minimum salary regulation.

In Bangladesh, the minimum wage for garment workers has been raised by 77 per cent to $68 per month in 2013, while the monthly wage for all economic sectors not covered by industry-specific wages remains at a meagre $19. In Myanmar, there is no minimum wage regulation at all although talks and surveys are ongoing in order to introduce basic wages. Currently, public employees receive at least $60 monthly, and day labourers can count on $1.70 to $2 a day plus subsidies and allowances in some cases.

However, the authors of the study point out that while cost competiveness is attractive for many investors seeking countries to manufacture goods cheaply, this benefit comes with risks related to poor working conditions, health and safety, child labour, human trafficking and possible strikes as it happened in Cambodia’s garment industry in the past years.

“The true cost of business in emerging economies is more than the direct expenses associated with the labour force,” says Charles van Caloen, Senior Analyst at Verisk Maplecroft, adding that “It is essential for companies to understand and price in risks such as strikes, disruptions and poor worker health when making market entry or strategic sourcing decisions.”

However, in the long run – as a normal development cycle – low-cost countries will attract more and more investment that, in turn, will drive development and increase productivity and wages, as it happened with China, and investors looking for low-cost sourcing will likely move on, the study suggests.

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