Gold Magazine November - December 2013, Issue 32 | Page 84

wages

SHRINKING EMERGING

{BUSINESS}

MARKET WAGE

GAP WILL RE-SHAPE
GLOBAL BUSINESSES

T

he wage gap between advanced
economies and emerging economies, such as China, India and
the Philippines will shrink significantly by 2030 according to new analysis published by PwC.
India and the Philippines remain at the
lower end of wage projection in relative
terms but average wages in India could
more than quadruple over the period in
real dollar terms and more than triple in
the Philippines. Real wages in the UK and
US are projected to rise by only around a
third over the same period, remaining at
similar levels to each other.
More striking is how substantially the
wage gap could close by 2030. India’s
current average monthly wage is around
25 times smaller than that of the UK. By
2030, it’s likely it be only 7.5 times smaller.
Average wages in the US are currently 7.5
times greater than in Mexico, but the gap
could close to a factor of less than 4 times
by 2030. Over the same time period, the
average monthly Chinese wage could rise to
around half that of Spain.
John Hawksworth, chief economist at
PwC, said: “While any such projections
are subject to significant uncertainties,
the direction of change is clear. The large
wage advantages enjoyed today by many
emerging economies will shrink as their
productivity levels catch up with those
in advanced economies and their real exchange rates rise as a consequence. Places
like Turkey, Poland, China and Mexico
will therefore become more valuable as
consumer markets, while low cost production could shift to other locations such as
the Philippines. India could also gain from

INDIA’S CURRENT AVERAGE
MONTHLY WAGE IS AROUND 25
TIMES SMALLER THAN THAT OF
THE UK.

this shift, but only if it improves its infrastructure and female education levels and
cuts red tape.”
These trends have a number of potential
implications for business strategy, such as:
• Companies re-shore their manufacturing
or service operations, as some US companies have already started to do, or else
move them to cheaper locations.
• As current large cost advantages decline,
companies move to locations that are initially more expensive but closer to home,
gaining more control over supply chains to
respond to customers’ changing needs.
• Middle income economies Turkey,
Poland and China begin offshoring to
relatively cheaper economies like Vietnam,
India and the Philippines.
• Current ‘Western’ offshorers (to India
and China, for instance) reorient their operations to sell their goods and services to
increasingly affluent local populations.
Michael Rendell, PwC partner and
Global Human Resource Services leader,
said: “Change is continuous and there will
be even more movement in the coming
years. Companies planning for this today

will find themselves with significant advantages, particularly in terms of people
costs. It’s inevitable that the manufacturing and services industries in countries
will transform as the cost base evolves, and
also that there will be winners and losers.
Governments, regulators and business
communities need to be ready for that
shift.”
The PwC analysis is based on estimates
of relative average monthly wage levels
from the International Labour Organisation (ILO), projected forward to 2030
using results from PwC’s latest World in
2050 report. The real wage projections
are in dollar terms and so allow both for
domestic real wage growth driven by
projected labour productivity trends and
estimated future real exchange rate movements. The ILO data relates to estimated
average monthly wages across the economy as a whole, not just manufacturing.
It should be borne in mind that there are
significant difficulties in getting fully comparable wage level data across economies,
so these estimates are subject to significant
margins of error.

Projected average monthly
wage levels relative to US index = 100
COUNTRY 2011 2020 2030
US
UK
SPAIN
TURKEY
SOUTH AFRICA
POLAND
CHINA
MEXICO
INDIA
PHILIPPINES

100
99
74
43
42
33
15
13
4
5

100
99
83
63
57
51
29
19
8
8

100
102
92
86
77
69
45
26
13
13

Source: PwC projections based on ILO data for 2011; real wages index relative in each year to US = 100

84 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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07/11/2013 17:43