Impact of the cost of labor in manufacturing. A case study of American companies relocating to Mexico

Running head: COST OF LABOR IN MANUFACTURING 1
Impact of the cost of labor in manufacturing. A case study of American companies relocating to
Mexico
Name
Institution
Date

COST OF LABOR IN MANUFACTURING 2
Executive summary
The cost of doing business is a concern to many companies today. In recent past, American
companies have been relocating to Mexico citing high cost of labor in the US. Moreover, Mexico
offers free trade agreements where companies can import or export products duty free. The study
aimed to examine the cost of labor in America's manufacturing sector that is pushing some
companies to relocate to Mexico. This research is significant as it will help the authorities
understand cost differences in manufacturing in America. Besides, the research mainly used
secondary data to present its findings. The results shows that the cost of labor in America is 12
times more than it is in Mexico. As such, the study recommends review of NAFTA agreement to
streamline trade between Mexico and America.

COST OF LABOR IN MANUFACTURING 3
TABLE OF CONTENTS
Executive summary.....................................................................................................................................2
1.0 Introduction.........................................................................................................................................4
1.1 Problem statement.............................................................................................................................4
1.2 Research objectives...........................................................................................................................4
1.3 Research questions............................................................................................................................5
1.4 The significance of the research........................................................................................................5
1.5 Purpose of the research......................................................................................................................5
2.0 Literature review.................................................................................................................................5
2.1 Why American manufacturing companies relocating to Mexico.......................................................5
2.2 Differences in the operational cost between America and Mexico....................................................6
3.0 Methodology.........................................................................................................................................6
3.1 Research design.................................................................................................................................6
3.2 Target population...............................................................................................................................6
3.3 Sampling and sample size..................................................................................................................7
3.4 Data collection and analysis..............................................................................................................7
3.5 Validity and Reliability......................................................................................................................7
3.6 Ethical considerations........................................................................................................................7
3.7 Limitations.........................................................................................................................................8
4.0 Results and Discussion........................................................................................................................8
5.0 Conclusion..........................................................................................................................................10
6.0 Recommendation...............................................................................................................................11
7.0 References...........................................................................................................................................12
8.0 Appendices.........................................................................................................................................14

COST OF LABOR IN MANUFACTURING 4
1.0 Introduction
According to Saayman and Middelberg (2014), the cost of labor is an integral part of
manufacturer's production cost and an increase in labor directly affects the productivity and
profitability of a company. In essence, if the cost of production is high, companies tend to earn
less, which reduces their profits. Moreover, labor is vital in the manufacturing sector and its costs
cannot be ignored. Countries like China are enjoying reduced cost of labor that is promoting her
rapid growth (Ceglowski & Golub, 2012). Currently, American companies are relocating to
Mexico while citing the high cost of labor in America.
1.1 Problem statement
America is currently struggling with a wave of companies relocating to Mexico citing the
high cost of labor in the United States (US). Puzzaghera (2016) acknowledge that three main
companies, Brake Parts Inc., Rexnord Corp., and Mondelez International relocated to Mexico
leading to massive job losses. According to Gillespie (2017), more than 800,000 jobs have been
lost from 1997 to 2013. As such, Americans continue losing jobs as companies relocate their
operations. If this trend continues, the unemployment rate will rise in America, which will, in
turn, affect her economy.
1.2 Research objectives
The main objective of this research is to examine the cost of labor in America's
manufacturing sector that is pushing some companies to relocate to Mexico. Moreover, the
specific objective is to find out the differences in labor cost between Mexico and America.
1.3 Research questions
i. Why are the American manufacturing companies relocating to Mexico?
ii. What are the differences in operational cost between America and Mexico?