Mexico s Wage Gap Charts

Transcription

1 Living Wages North and South Mexico s Wage Gap Charts Wage rates for all employed in manufacturing 2018 Report Wage gap charts for Mexico vis-à-vis selected developed and emerging economies, with available wage and PPP data ( ) (see definitions and sources at the end of report)

2 Wage gap charts for Mexico vis-à-vis selected developed and emerging economies, with available wage and PPP data ( ) Web portal: Under Creative Commons Attribution 3.0 License 2

3 Table of Contents Argument for wage equalisation classic problem scenario 4 Argument for wage equalisation the argument 5 Argument for wage equalisation concept of living wage using PPPs 7 Argument for wage equalisation classic example in wage rate gap comparisons for selected economies 10 Size of gaps with US Manufacturing hourly real wage rates via PPPs 11 Equalisation index with US Manufacturing hourly real wage rates via PPPs 12 Political context of the state of manufacturing wages in Mexico 13 Main features of the state of manufacturing wages in Mexico 16 Gap between manufacturing hourly wage and PPP equalisation index with real US wage 18 Comparison of nominal hourly wage rates of Mexico s manufacturing workers to close or maintain 1996 gap with US counterparts 19 Gap Between nominal manufacturing hourly wage rates and equalised wage in PPP terms with equivalent US real wage rate 20 Gap between equalisation index and size of manufacturing hourly real wage rate gap in Mexico vis-à-vis US real wage rate 21 Equalisation index comparison in PPP terms of hourly real wage rate with equivalent US wage rate of Mexico and South Korea 22 Mutual proportion comparisons of PPP real wage rate between Mexico and South Korea 23 Equalisation index comparison in PPP terms of hourly real wage rate with equivalent US wage rates of Mexico and Argentina 24 Mutual proportion comparisons of PPP real wage rates between Mexico and Argentina 25 Behaviour of comparative indices of manufacturing hourly real wage rate with thirteen countries 26 Performance of equalisation indices of manufacturing real wage rates and PPP indices with twelve countries 30 Thirteen-year projection of the closing of real wage rate equalisation gap 36 Seventeen-year projection of the closing of the gap between minimum wage and the Indispensable Basket of Goods 38 Prospectus 40 Table T5 Living-Wage-Gap and Equalisation analysis (vis-à-vis the US) for all employed in manufacturing in purchasing 41 power parity terms Definitions and Sources 44 3

4 The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) Classic Problem Scenario With market liberalisation, MNCs sell their products in both the host countries and in all other markets where they are active, including their home country, at the same or at a very similar sales price, They achieve maximum profitability when the manufacturing process in their developing countries operations is at par in quality and production efficiency with the standards used in their home operations but their cost of labour is dramatically lower, The MNCs markets and their manufacturing and marketing operations are globalised but their labour costs remain strategically very low in order to achieve maximum competitiveness and shareholder value at the expense of the South s workers, The resulting situation is one where MNCs get all the benefit. Sometimes the salaries that they pay are higher than the legal minimum wage in the host country. Yet, these wages still keep workers in dire poverty. A minimum wage does not make a living wage even in the most developed economies, What has occurred, with market globalisation, is the dramatic widening of the gap between wages in the North and in the South, While the standard of living of a worker in the North provides the basic means to make a living and afford a basic standard of comfort, a worker working for the same company, doing the exact same job with the same level of quality and efficiency, lives in a shanty town in a cardboard house with no sewage, water and legal electricity, In this way, the huge differential in labour costs is added to the profit margin, keeping the part (the surplus value) that should have provided the worker with an equivalent standard of living to that enjoyed by the same workers in the North. This surplus value from the labour factor is the part rightfully belonging to workers, and that they should have received from inception, as their fair share of the income resulting from the economic activity. 4

5 The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) The Argument In true democracy the purpose of all governments is to procure the welfare of every rank of society, especially of the dispossessed, with the only end of all having access to a dignified life in an ethos where the end of democratic societies is the social good and not the market. The market is just one vehicle to generate material wellbeing, In this ethos, and with markets globalised, workers performing the same or an equivalent job for the same business entity, in the generation of products and services that this entity markets at global prices in the global market, must enjoy an equivalent remuneration, This equivalent remuneration is considered a living wage, which is a human right, A living wage provides workers in the South with the same ability to fulfil their needs, in terms of food, housing, clothing, healthcare, education, transportation, savings and even leisure, as that enjoyed by equivalent workers in the North, which we define in terms of the purchasing power parities (PPP) as defined by the World Bank and the OECD, The definition of a living wage of is as follows: A living wage is that which, using the same logic of ILO s Convention 100, awards equal pay for work of equal value between North and South in PPPs terms, The premise is that workers must earn equal pay for equal work in terms of material quality of life for obvious reasons of social justice, but also, and equally important, for reasons of long-term global economic, environmental and social sustainability. 5

6 The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) The Argument The argument of an equivalent living wage is anchored on two criteria: Article 23 of the UN Universal Declaration of Human Rights on the following points: a. Everyone, without any discrimination, has the right to equal pay for equal work, b. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. ILO s Convention 100 of equal pay for work of equal value, which is applied for gender equality, but applied in this case to North-South equality, using PPPs as the mechanism, The proposal is to make workers in the South earn living wages at par with those of the First World in terms of PPPs in the course of a generation (thirty years), There will not be any real progress in the true sustainability of people and planet reversing environmental degradation and significantly reducing poverty if there is no sustained growth, in that period, in the South s quality of life, through the gradual closing of the North South wage gap; attacking, in this way, one of the main causes of poverty, and pursuing concurrently sustainable development rationally reducing consumption in the North and rationally increasing it to dignified levels in the South, thus reducing our ecological footprint on the planet, Just as the International Labour Organisation s Decent Work Agenda states, the decent work concept has led to an international consensus that productive employment and decent work are key elements to achieving poverty reduction, The material quality of life in Jus Semper s The Living Wages North and South Initiative (TLWNSI) is defined in terms of purchasing power, so that equal pay occurs when purchasing power is equal, Purchasing power is determined using purchasing power parities (PPPs), Purchasing power parities (PPPs) are the rates of currency conversion that eliminate the differences in price levels between countries. 6

7 The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) Concept of Living Wage Using PPPs The concept of a living wage using PPPs is straightforward. To determine real wages in terms of the purchasing power of any country in question, the PPPs of this country are applied to nominal wages. These are the real wages for each country, Purchasing power parities reflect the amount in dollars required in a given country to have the same purchasing power that $1 US has in the United States; e.g.: if the PPP index in one country is 69, then $0,69 are required in that country to buy the same that $1 buys in the US; thus, the cost of living is lower. If the PPP were to be higher than 100, say 120, then $1,20 is required in that country to buy the same that $1 buys in the US; the cost of living is, thus, higher, To calculate a living wage, the real wage of a specific category of US workers is used as the benchmark, and the PPPs of a country in question are then applied to the US wage, This provides the equivalent living wage that a worker in the country in question should be earning in order to be at par in terms of purchasing power to the material quality of life enjoyed by the equivalent US worker. This is the equalised wage in terms of purchasing power, In this way, the comparison between the actual real wage of the country in question exposes the gap, in real terms, between the current real wage of the worker of the country in question and the living wage it should be earning, in order to be equally compensated in terms of PPPs, In practice, since the PPPs vary annually, due to the dynamics of economic forces, the pace of the gradual equalisation of wages, through small real-wage increases, needs to be reviewed annually. It must be pointed out that this rationale does not even take into consideration that the neoliberal paradigm of staunch support for supply-side economics has consistently depressed for three decades the purchasing power of real wages in the US, the benchmark country for wage equalisation. This has been attempted to be resolved by women joining the work force and, fictitiously, through over indebtedness, which eventually has brought us down to the great implosion of capitalism in In this way, this equalisation analysis is made in the context of a course set forth during three decades of global depression of real wages in favour of international financial capital. 7

8 The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) A Classic Example in 2016 Equivalent manufacturing workers in Mexico and Brazil earn only 18% and 33%, respectively, of what they should be making in order to be compensated at par with their US counterparts in terms of purchasing power, US Workers earn $39,03/hour whilst Mexican and Brazilian workers earn only $3,91/hour and $7,98/hour, respectively, Since costs of living in PPP terms in Mexico and Brazil are $0,54 and $0,63, respectively, for each $1 US dollar, equivalent Mexican and Brazilian manufacturing workers should be earning instead $21,15/hour and $24,53/hour, respectively, in order to enjoy equal purchasing power compensation, The difference is the wage rate gap that employers perversely keep to increase profits, Canada, in contrast, has a much smaller gap with its US counterparts, since its nominal wage rate ($30,08) is 77% of the equivalent wage rate ($39,91) needed to be at par, with a PPP of $1,02 per each $1 US dollar. Nominal, Real and Equalisation Wage Rate for All Employed in Manufacturing by Using Purchase Power Parities (PPPs) Benchmark Nominal PPP PPP Equalised Equalisation Hourly Nominal Hourly 2016 Wage Rate 2016 Real Wage Rate Wage Rate Index United States $39, $39,03 $39, Canada $30, $29,41 $39, % 75 % 102 % Mexico $3,91 54 $7,22 $21, % 18 % 54 % Brazil $7,98 63 $12,70 $24, % 33 % 63 % Sources: The Conference Board, International Labor Comparisons program, February Data base of World Bank's World Development Indicators, , (private consumption PPP indicator) 8

9 The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) A Classic Example in 2016 From a graphic perspective, the first pie chart shows the US real wage rate for all employed in the manufacturing sector, which is always the benchmark. In the case of Mexico, the pie chart exhibits the nominal wage rate earned, the nominal wage rate equalised with the US wage rate always in purchasing power parity terms, and the difference retained inappropriately (deliberately). The nominal equalised wage rate of $21,15 is what all employed in Mexico s manufacturing sector should earn to be equally remunerated (in purchasing power terms) for performing an equivalent task (because Mexico s PPP cost of living is 54% the cost in the US). Yet, workers only earn $3,91 instead of $21,15, thus the employer deliberately retains $17,24, which constitutes the greater part of the surplus value that legitimately belongs to Mexican workers, according to TLWNSI s concept. In this way, the second pie chart shows how the employer retains inappropriately 82% of labour s surplus value, or labour share of income, by only allocating to the worker 18% of what he/she is entitled to. $39,03 $3,91 82 % 18 % $17,24 $21,15 Nominal wage rate earned Equalised nominal wage rate Difference inappropriately retained by the employer US equivalent wage rate (benchmark for equlisation) Nominal wage rate earned Difference inappropriately retinaed by the employer Sources: WB, US BLS, OECD 9

10 Wage rate gap comparisons for selected economies Nominal wage rates in dollars continued to decrease in 2016 at the same rate as in 2014, averaging a drop of 12,5%, vis-à-vis 12,6% in This is due to a great extent to the devaluation of these currencies against the dollar. Furthermore, most wage rates in local currencies increased at a lower rate than the 5,4% increase of the US hourly wage rate. As a result, most equalisation indices continued dropping. Only Italy and South Korea sustained their 2014 indices and Singapore was the only one of the twelve economies selected that was able to increase its index in Since 2012 only three economies did not increase their equalisation gaps. Germany kept the same index and Italy and Singapore improved their equalisation. Of the twelve selected economies, four are worse off than in 1996, Brazil did not change and seven are better off than in Overall, East Asia economies have fared far better than the rest. Among East Asian countries, Singapore has been improving steadily since 2010, increasing its living wage equalisation with the US from 66 to 81 in South Korea has not been able to recover its highest index (71) in 2014, but at least remained at the same level as in 2014 (68). Japan has not been able to sustain the closing of its wage gap, since its equalisation index dropped two points to 69, from its highest index ever achieved in Outside of East Asia, only Italy, Spain, France and Australia recorded a higher equalisation index in 2016 than twenty years earlier. However, among these countries, only Italy managed to increase its index since 2012, albeit its index remained the same between 2014 and Canada, Brazil, Mexico, France, United Kingdom, Spain and Australia recorded lower equalisation indices both in 2014 and 2016 than in Australia is just one point above its equalisation index in 2016 versus 1996 ((82 vs. 81). However, Australia dropped the most points in equalisation since 2014, from 90 to 82. Brazil has increased its wage gap since 2014 due to the devaluation of its currency since 2010 under a sustained recession. Brazil s government under Dilma Rousseff continued complying with its minimum wage appreciation law, which increased its nominal value 72,5% between 2010 and 2016 vis-à-vis a 49,7%% increase of its consumer price index. However, after she was impeached, the new neoliberal government of Michele Temer passed a law that puts a freeze on public spending effectively ending compliance with the minimum wage appreciation law. Consequently, in 2017 and 2018 the minimum wage was increased at a slightly lower rate than the NCPI. Mexico s track record since 1996 (and since 1985 if we look back at production-line hourly wages) exposes a deliberate State policy of maintaining real wages at the level of modern-slave-work wages. The government s survey data was improved in 2016 to include all manufacturing units. This has caused indices to drop 25% on average. Consequently the wage gap is actually much greater than what was being reported and it is now as low as in China, with the difference that China has been increasing real wages steadily. With Mexico there has been virtually no change in equalisation terms for the entire twenty-year period. This makes Mexico, barring the Philippines, the country with the worst living-wage equalisation position of the 34 countries in the three regions of our living-wage gap assessments gaps between nominal and equalised wage rates with US wage rates using PPPs for private consumption (Total hourly manufacturing compensation costs in US dollars US is benchmark) $50 Benchmark (20%) (1%) 7% 18% 19% 25% 26% 31% 32% 33% 39,03 39,03 43,18 35,88 37,7237,48 32,49 34,90 38,19 46,53 33,18 26,75 30,08 39,91 28,41 42,27 22,98 33,76 23,44 31,79 26,46 38,44 67% 24,53 82% 21,15 $0 7,98 3,91 US Germany France Italy Australia Singapore Canada Spain Japan South Korea UK Brazil Mexico Nominal Wage Rate Equalised Wage Rate Gap between Nominal and Equalised wages rates in terms of purchasing power parities 1) If lighter bar is greater than darker bar= Nominal wage rate is superior to rate required to be at par with US. 2) If darker bar is greater than lighter bar= Nominal wage rate is less than wage rate required to be at par with US. 3) If both bars are in equilibrium= Nominal wage rate is equivalent to nominal wage rate in US in terms of purchasing power (The size of wage gap is expressed in percentages. If negative, there is a wage advantage instead of a wage gap for nominal wage rate is superior to rate required to be at par with US. Comparisons are in terms of hourly compensation costs as explained in T5.) Sources: Data base of World Bank's World Development Indicators, , (PPP indicator for private consumption) X International Comparisons of Hourly Compensation Costs for all employed in Manufacturing, The Conference Board, International Labor Comparisons program, February

11 Overall, seven out of the twelve countries in this assessment are better off in 2016 than in Brazil shows no change and Canada, Mexico, Germany and the UK are worse than in East Asian economies record the greatest gains in their wage-rate position. Singapore and South Korea have recorded the most improvement in the reduction of their wage gaps since In contrast, Canada has recorded the greatest decline, followed by the United Kingdom. Both remain at their lowest point since Germany continues to have the best position with an actual advantage vis-à-vis the US in PPP wage rates. Yet it remains with an index eight points below its best position. South Korea has not been able to resume its wage-gap reduction trend. It instead increased it in 2014 to then stall after that. Yet after Singapore, it has reduced its gap the most since Japan has also stalled since Singapore in contrast has been able to sustain a wage-gap reduction trend and now has the smallest gap in the region and its smallest ever. The UK has been steadily losing ground since its best position in 06 and in 2016 remains at more than double (33% vs 14%). This is the widest wage gap recorded by the UK for the entire period. Canada s wage-rate gap has deteriorated dramatically and it is has increased its gap 15 points since 1996, its worst ever. Australia experienced a drastic increase of its wage gap, increasing it by eight points since 2014 and it is now almost at the same position as in Among the euro-area countries, despite the euro devaluation against the dollar, France, Italy and Spain have reached a plateau at their smallest or close to their smallest wage gap since Germany has also stalled, but unlike the other economies, it has done it ten points below its best level, recorded in Despite the stagnation trend, Italy was able to remain at its best position in Brazil s prolonged recession has impinged on its wage gap, increasing it by two points since 2014 to a 67 point gap in 2016, the same as in Mexico s track record since 1996 (and since 1985 if we look back at production-line hourly wages) exposes a deliberate State policy of maintaining real wages at the level of modern-slave-work wages. The government s survey data was improved in 2016 to include all manufacturing units. This has caused indices to drop 25% on average. For instance 2014 was recalculated from a 27 index to a 20 index. Consequently the wage gap is actually much greater than what was being reported and it is now as low as in China, with the difference that China has been increasing real wages steadily. With Mexico there has been virtually no change in equalisation terms for the entire twenty-year period. This makes Mexico, barring the Philippines, the country with the worst living-wage equalisation position of the 34 countries in the three regions of our living-wage gap assessments. 90 Size of Gaps with US - Manufacturing Real Hourly Wage Rates via PPPs US Benchmark Canada South Korea Japan France Germany Italy United Kingdom Spain Mexico Brazil Australia Singapore Sources: WB, US BLS, TCB, OECD 11

12 From an equalisation perspective, South Korea has not been able to resume its living-wage equalisation trend. Its equalisation index (Eq-Idx) dropped in 2014 to then stall after that. Yet after, Singapore, it has increased its Eq-Idx the most since 1996, gaining 20 points in the period. Japan, as South Korea, has also stalled since 2012 and is now only 10 points above its 1996 index. Singapore in contrast has been able to sustain a living-wage equalisation trend and now has the highest in the region and its best Eq-Idx ever at 81. The UK has been steadily losing ground and in 2016, with an Eq-Idx of 67, is far from its best index ever of 86, recorded in This is the lowest Eq-Idx recorded by the UK for the entire period. Canada s Eq-Idx has deteriorated dramatically since its 90 index in 1996 and in 2016 is now at its worst ever at 75. Australia experienced a drastic drop of its Eq-Idx, losing eight points since 2014 and it is now almost at the same index as in Among the euro-area countries, despite the euro devaluation against the dollar, France, Italy and Spain have reached a plateau at their highest or close to their highest Eq-Idx since Germany has also stalled, but unlike the other economies, it has done it ten points below its best Eq-Idx, recorded in Despite the stagnation trend, Italy was able to remain at its best Eq-Idx in 2016 with 93 points. Brazil s prolonged recession has impinged on its Eq-Idx, losing two points since 2014 to a 33 Eq-Idx in 2016, the same as in Mexico s track record since 1996 is of deliberate drastic erosion of its real wages, to place them at the level of modern-slave-work wages. To make it worse, the government s survey data was improved in 2016 to include all manufacturing units. This has caused indices to drop 25% on average. For instance 2014 was recalculated from a 27 index to a 20 index. Consequently its Eq-Idx is much worse than what was being reported and it is now as low as in China, with the difference that China has been increasing real wages steadily. With Mexico there has been virtually no change in equalisation terms for the entire twenty-year period. This makes Mexico, barring the Philippines, the country with the worst living-wage equalisation position of the 34 countries in the three regions of our living-wage gap assessments. 140 Equalisation Index with the US - Real Manufacturing Hourly Wage Rates via PPPs US Benchmark Canada South Korea Japan France Germany Italy United Kingdom Spain Mexico Brazil Australia Singapore Sources: WB, US BLS, TCB, OECD 12

13 Political context of the state of manufacturing wage rates in Mexico Mexico s fraudulent government, fixated on the precarisation of Mexican society, continues to deliberately violate the entire spectrum of civil, political, economic, social, environmental and cultural rights of their citizenry The carefully-designed labour policy since the 1980s of Mexico s mafia-like governments has continued unabated. These governments have literally acted as captors of Mexico, deliberately pauperising Mexico s labour force and plundering all natural resources. Their unrelenting malfeasance, leaves no alternative but to continue exhibiting its nefarious consequences on the real wages of workers and the huge wage gaps with equivalent workers in the US. Ironically, the government s survey data was improved in 2016 to include all manufacturing units. This has caused indices to drop 25% on average. For instance 2014 was recalculated from a 27 index to a 20 index. Consequently the wage gap is actually much greater than what was being reported. China s data cannot be used to make direct comparisons. Nonetheless, nominal wage rates appear to be now lower than or as low as in China, with the big difference that China has been increasing real wages steadily. With Mexico there has been virtually no change in equalisation terms for the entire twenty-year period. This makes Mexico, barring the Philippines and perhaps India, the country with the worst living-wage equalisation position of the 34 countries in the three regions of our living-wage gap assessments. The illegitimate and robber-baron nature that accurately portrays the Mexican state, has imposed an ethos of modern-slave-work, of near labour bondage that drags the country back to conditions prevailing before the social revolution of These are its most conspicuous features: Every year, labour policy maintains the minimum wage at its lowest level by blocking any increase above inflation, despite the fact that real wages have been pulverised consistently since This is possible because the consumer price index (CPI) for the basic goods consumed by working families is much higher than the inflation index for the entire economy. This wage erosion trend is extremely consistent with the data reporting on the wages of all employed in manufacturing since Mexico s equalisation index has barely changed in twenty years between a low of 18 and a high of 21. Thus, virtually it has not moved, unlike the case for most countries, which have shown marked improvements in equalisation. To accomplish this, the state has unleashed a policy, increasingly more repressive, of labour rights violation. The repression has centred on the destruction of trade unions, the harassment of their leaders and the blatant violations of labour law, given the state of absolute impunity prevailing in Mexico, with the full international support of the governments of partner countries. The ILO s core conventions, ratified decades ago by the Mexican state, are violated customarily. Miners, energy workers and farm day labourers have endured one of the most systematic repressions. A recent series on Mexico s labourers published by the Los Angeles Times provides a vivid and accurate account of sheer labour bondage as the standard enjoyed by employers in Mexico, with the full support of the state ( NAFTA is a true disaster, but the real losers are the Mexican workers, who subsidise US wages and consumer prices with modern-slave-work wages, with millions losing their livelihoods, and many forced to migrate to the US, in contradiction with Trump s government propaganda. (See: Felicity Lawrence: Trump is right: NAFTA is a disaster. But US workers aren t the big losers. The Guardian, 18 November 2016). The Mexican State has effectively betrayed Mexico by imposing predatory trade agreements, well aware beforehand that such agreements would destroy the social fabric, surrender natural resources and convert the vast majority of the population into a huge mass of Guy Standing s precariat. As a result of these predatory policies, millions of Mexicans were forced to migrate to the US, which acts as if it has nothing to do with the massive deprivation resulting from the agreements concerted with the Mexican elite. By 2006 over two million agricultural jobs, including 1,7 million small farmers, were lost and workers, farmers and their families were forced to leave the countryside (James M. Cypher: Mexico s Dependant Economy Manufacturing wages lower than in China,, A TLWNSI Issue Commentary, September 2017). In fact, between 2000 and 2005, more than Mexicans, mostly from rural communities, moved annually to the US, and by 2009 more than twelve million had moved to the US. As a consequence, the country has suffered a terrible transformation in the components of job generation, for it is estimated that at least 58% of the economically active population worked in 2015 in the informal sector according to the government s own data (INEGI BOLETÍN DE PRENSA NÚM. 207/18 16 DE MAYO DE 2018) and to the OECD, which estimates that up to 63% of total employment is informal (Employment Outlook 2011 How does Mexico compare? OECD, 2011). To be sure, wages and other labour compensations of those making a living in this sector occur in much worse conditions than those prevalent in the manufacturing sector addressed in this assessment. Furthermore, the current government passed a new labour law reform on 30 November, The reform imposes a sheer flexibilisation of hiring and lay off practices, with a daily minimum wage that has lost +80% of its real value since 1976 (Universidad Iberoamericana: Informe Anual del Observatorio de Salarios 2016). Mexico s minimum wage for 2016 amounts to $3,91 (P $73,04) for an 8-hour shift. This is equivalent to about $0,49/hour or 6,8% of the US minimum wage, despite the fact that México PPP for private consumption is 54% of the US, which would require Mexico s minimum wage to be of $3,92/hour to be at par in purchasing power with the US minimum wage; something that does not even take into consideration that the US minimum wage is also far from being a living wage. Clearly, Mexico s minimum wage is of a labour-bondage compensation nature. 13

14 Political context of the state of manufacturing wage rates in Mexico A domestic perspective. To put TLWNSI s living wage equalisation concept in a local context, we have assessed the real value of nominal wages of all employed in the manufacturing sector vis-à-vis an indispensable basket of goods (indispensable to enjoy a dignified quality of life). This basket (or CBI by its Spanish-language acronym) is an academic standard developed to measure the purchasing power of wages and as a reliable indicator to assess poverty. We are applying the latest report from the Wage Observatory Centre of Universidad Iberoamericana (UIA), on the assessment of the cost of the CBI performed in the city of Puebla, the fourth-largest city in the country and representative of the average cost of living in Mexico. The CBI is composed of a food-items basket and a non-food-items basket (a combined food and other basic items basket for a household of four). The CBI is assessed as the bare minimum necessary for the reproduction of the workforce. Typically, this assessment is performed against Mexico s minimum wage. In the Centre s 2014 field survey, the combined monthly cost of both baskets was P$16.444,76. In 2014 the monthly minimum wage was P$2.018,70, which could afford 12,3% of the CBI (Informe 2014 del Observatorio de Salarios, Universidad Iberoamericana, Puebla). In other words, to buy the CBI workers required 8,15 minimum wages in However, according to INEGI, the government s statistics institute, 76% of all salaried workers earned five minimum wages or less, only 8,4% earned more than five minimum wages and 15,5% did not disclose their income (INEGI: Indicadores estratégicos de ocupación y empleo, ENOE 2014). Thus, we can very conservatively assert that at the very least 80% of all salaried workers could not afford to buy the CBI in Indeed, Mexico s wage policy has been so predatory over the decades, that Mexico s minimum wage is now among the lowest in the Americas, only El Salvador, Nicaragua and the Dominican Republic are behind (Expansión \ datosmacro.com and wageindicator.org, consulted on 15/08/2018). Lastly, if we measure the affordability of the CBI with manufacturing wages, the best wages in the economy, they could not afford to buy it as well. Indeed, the monthly cost of this CBI in dollars in 2014 was $1.237,20. Applying the CBI costs to the hourly direct pay of $4,75 (not counting taxes, social or company indirect benefits) of all employed in manufacturing in Mexico, shows that not even these workers the best paid were able to afford it. Using 40 hours per week shifts over 4,33 weeks in a month would only buy 66% of this CBI. In another assessment of the affordability of a basic basket of goods, the Universidad Obrera de México (UOM), periodically measured the affordability of their indispensable basket of goods for a household of five in Mexico City. In January 2013 the minimum wage could afford 10,13% of the CBI, down from 49% in 1994, a 79% loss of purchasing power in 20 years (1) STPS: Salarios Mínimos Vigentes ; 2) Laura Juárez Sánchez: Política económica neoliberal y salarios, Trabajadores, Universidad Obrera de Mexico VLT, Vol. 61, julio-agosto de 2007: 3) Laura Juárez Sánchez: Violencia económica en contra de los trabajadores mexicanos, Revista Trabajadores, Universidad Obrera de Mexico, VLT, Noviembre-Diciembre 2011, Número 87). The daily cost of the CBI in dollars was $9,15 in 1994, $23,86 in 2009, $40,12 in 2011 and $50,04 at the start of 2013 (extrapolating our own calculations for 2013 based on: reporte CAM_UNAM 109, p. 14, Cuadro No.5, June 2013), a 447% increase in nineteen years. Applying the CBI costs to the hourly direct pay (not counting social or company indirect benefits) of all employed in manufacturing in Mexico shows that while they were able to afford 95% of the CBI in 2009, they could only afford 65% in 2011 and 55% in 2013, a loss of 44% of their purchasing power in just four years. Both in the case of the UIA s CBI for a household of four in 2014 and of UOM s CBI for a household of five in 2013, the net monthly income of a head-of-household in the manufacturing sector is far from affording the cost of these CBI s. Clearly, as illustrated for UOM s CBI (IBG) on the charts in the next page, the wages for all workers including all employed in manufacturing have been pauperised and permanently converted into hunger wages. Even the staunchly neoliberal Economist magazine openly criticised Mexico s minimum wage policy as designed to hurt workers (Mexico s minimum wage; stingy by any measure, The Economist: 16 August 2014). Absence of the Rule of Law. The desertion of Mexico s governments, for the last three decades, from the basic responsibilities of any government that praises itself for being democratic, has imposed a no-rule-of-law state or anomie: the collection of events that are engendered by the lack of social norms or their degradation; a sine qua non condition to act with complete impunity, thus, demolishing the state s responsibility to maintain a rule-of-law state. As one of its consequences, a supposed war against drug trafficking was launched in 2007, which officially engendered as of December thousand homicides (since 2007) according to the government s INEGI. The same policy prevails with the current government, which officially acknowledges thousand homicides for the period, and it is slated to surpass 143 thousand homicides by the end of 2018 (Secretaria de Gobernación Secretariado Ejecutivo del Sistema de Seguridad Pública: Informe de víctimas de homicidio, secuestro y extorsión 2017, 20/01/2018; and own estimate for 2018). In 2014, a number of massacres, extensively covered by the Mexican and international press, such as the massacre of 43 students in Guerrero state, most likely perpetrated by local and federal police as well as the army, have exacerbated the state of anomie prevailing for most of the century. A deliberate predatory and plundering economic policy. It must be clear that the dire results rendered in the labour s share of income are not due to a failure in economic management but to a deliberate economic policy of plundering. Since 1981, when production-line wage rates achieved their highest index in Mexico, they initiated a constant erosion in PPP terms vis-à-vis their equalisation with the purchasing power of equivalent US wage rates dropping to half of its 1981 equalisation index by This is possible due to the full support of employers by the state through its customary policy of pauperisation, to which it adds its new policy of social intimidation, as it has become increasingly evident that the true goal of the war against drug trafficking is to inhibit social outcry by intimidating the population in order to enjoy a free reign to continue depredating the country (Zózimo Camacho: La fuerzas armadas mexicanas ante la amenaza estadounidense, Contralínea, 27 noviembre 2016). This has allowed the state to maintain the vast majority of workers under modern-slave-work conditions. Yet, in 2011, Mexican citizens filed a complaint with the International Criminal Court in The Hague, requesting an investigation of, at the time, President Calderon and his top officials for the deaths of hundreds of civilians at the hands of the military, accusing them of allowing subordinates to kill, torture and kidnap civilians. Many alternative and reliable sources assessed that the casualties officially recognised at the end of 2012, were actually above , as it was later reported by the goverment s INEGI, as detailed in the preceding paragraph. The current Peña Nieto administration bears a similar track record of human rights violations, repression, corruption and impunity that has characterised Mexican administrations for most of their history, with the full support of the international community. At the end of 2016, there was a slight signal that, given the extremely dire situation of wages in Mexico, the government finally devised a way to not look so bad and apparently slightly recover the real value of the minimum wage. In a poorly explained press release, the minimum wage for 2017 was increased arbitrarily by MX $4,00, as a result of a so-called Independent Recovery Amount (MIR in Spanish) and then a 3,9% was applied to offset the estimated GDP inflation rate. In this way, the minimum wage increased by 9,58% from MX P$73,04 to Mx P$80,04 per day (Comisión de Salarios Mínimos: Boletín de Prensa: /2016DICIEMBRE01-FIJACION_2017.pdf). The same criterion was applied for 2018, with an Independent Recovery Amount of P$5 plus another 3,9% increase to account for GDP inflation. In this way, the 2018 minimum wage is of P$88,36 or P$2.687,61 on a monthly basis. If in 2014, the CBI had a monthly cost of P$16.444,76 and required 8,15 minimum wages, in 2018 the CBI would cost more than P$19.290,00 just by adding GDP inflation, which is much less than the inflation rate for the CBI. Thus, workers would still require more than seven minimum wages to buy the basic basket of goods. Yet, according to INEGI, close to 87% of salaried workers earn five minimum wages or less. With the electoral victory of López Obrador in 2018, things are planned to marginally change for the better for workers. In his Government Plan, he states that the minimum wage will be increased by 15,6% annually, plus inflation, until reaching P$171,00 by the end of his six-year term (Proyecto de Nación , page 227, available at: This is a plan similar to Lula s plan in Brazil, and precisely what we have been proposing for over a decade, with the big shortcoming that, to reach the P$171 plateau, he would need to increase the minimum wage by 15,6% annually for the first four years and then by only 8,37% on his fifth year (2023), not counting what he adds to account for inflation, or around 20% annually including inflation. What does he plan to do after that? In any case, this is far too short to make the minimum wage a living wage vis-à-vis the CBI. With this plan the CBI would require about 3,9 minimum wages. Even if he continues increasing the minimum wage by around 20% every year until 2024, the CBI would still require about three minimum wages. However, this exercise is merely rhetorical, given that the inflation for the CBI is typically higher than the inflation for the entire economy and his government may very well end up with a CBI that would still require seven or eight minimum wages to afford it, unless he makes a priority effort through a strong policy of controlling oligopolistic market practices that tend to raise prices of the goods and services of the CBI by 20% or more annually. 14

15 Political context of the state of manufacturing wage rates in Mexico Cost of UOM s Indispensable Basket of Goods (IBG) versus daily minimum and manufacturing wages in Mexico $60 $50 US dollars $40 $30 $20 $10 $ Daily IBG cost Daily minimum wage Daily manufacturing wage 140 % Percent of cost of UOM s IBG covered by net wages 117 % 93 % 70 % 47 % 23 % 0 % Daily minimum wage Daily manufacturing wage Sources: (1) STPS (Mexico s Secretary of Labour): Salarios Mínimos Vigentes ; 2) Laura Juárez Sánchez: Política económica neoliberal y salarios, Trabajadores, Universidad Obrera de Mexico VLT (UOM), Vol. 61, julio-agosto de 2007; 3) Laura Juárez Sánchez: Violencia económica en contra de los trabajadores mexicanos, Revista Trabajadores, Universidad Obrera de Mexico, VLT, Noviembre-Diciembre 2011, Número 87); (extrapolation of our own calculations for 2013 based on: reporte CAM_UNAM 109, p. 14, Table No.5, June 2013); 4) US Department of Labour and The Conference Board: International Comparisons of Hourly Compensation Costs for all employed in Manufacturing,

16 Main features of the state of manufacturing wage rates in Mexico Wage rate equalisation track record since Mexico achieves its least precarious wage rate equalisation in 1981, when productionline (PL) manufacturing wage rates reached an equalisation index of 45 over their 100 goal. Yet, starting in the 1980s the Mexican state surrenders to the guidelines of the World Bank and the IMF, the institutions in charge of imposing the Washington Consensus to evidently undemocratic governments wishing to obtain legitimacy through their recognition by the metropolises of global capitalism. As a result, Mexico s manufacturing real wage rates endure a systematic policy of erosion that gradually makes them lose more than half their value. In 1995, after the debacle of the economic policies of the Mafia state, real wage rates dropped to their worst level since 1975, with an equalisation index of barely 19 with their US counterparts. Subsequently, PL wage rates recovered slightly (27) to then drop again to 24, 25 and 23 for 2005, 2007 and 2009 respectively. In this way, from a 45 index in 1981 to 23 of 2009, Mexican production-line wage rates lost 49% of their already meagre purchasing power equalisation with the wage rates of their US counterparts. Hourly wage data published by the US Department of Labour for production-line workers is not available for subsequent years. In the case of all workers employed in the manufacturing sector since we can no longer track wage rates for PL workers their wage rates continue to show the exact same trend. The data available only goes as far back as 1996, but it is clear that wage rates for all employed in manufacturing have eroded at even a worse pace than those for PL workers, even if we lack the data to use 1975 as the historic indicator. This is a realistic assumption given the fact that the gap between PL and all employed in manufacturing wage rates has been diminishing downward. While in 1996 the hourly wage rates of all employed in manufacturing was 61,3% higher than for PL workers, in 2000 it dropped to 55,6%, in 2006 to 50,8% and by 2009 it had dropped to 49,6%. Thus there is a consistent erosion of the wage rates of all the workers not employed in production. This erosion is causing their wage rates to gradually and downwardly close in with those of the workers employed in the production area of the manufacturing sector. To make it worse, the government s survey data was expanded in 2016 to include all manufacturing units. This caused indices to drop 25% on average. Consequently the wage gap is actually much greater than what was being reported and it is now as low as in China, with the difference that China has been increasing real wages steadily. Comparison with South Korea. The case of South Korea, included in pages 10, 11 and 12, clearly shows the great difference in the performance of the wage rates for all employed in manufacturing in their equalisation with those of their US counterparts vis-à-vis Mexico s wage rates. Yet, because they only go back to 1996, their performance is not nearly as dramatic as that for production line-wage rates in past reports, which start in For production-line workers, South Korea s outcome could not be more divergent with Mexico s, for its equalisation index in 2009 was almost three times greater than Mexico s (65 over 23), whilst in 1975 South Korea s equalisation index was barely 30% of Mexico s (11 vs. 37). The contrast was even more dramatic before the crises, for in 2007 the relationship was more than three times in favour of South Korea (83 over 25). This contrast becomes all the more evident when comparing the mutual proportion of PPP real wage rates of both countries between 1975 and In 1975 México s production-line real wage rates were 3,5 times South Korea s. By 2009 we observe an inverse relationship, for South Korea s wage rates were 2,9 times Mexico s. As for all employed in manufacturing, in 1996 Mexico s real wage rates were 40% of South Korea s, but by 2016 they were down to only 27% (page 23). This exposes how a state committed to social wellbeing can make real wages reach the ranks of those of the major economies. Instead of surrendering its labour market to the guidelines of the Washington Consensus to apply a modern-slave-work model, South Korea chose endogenous development by strengthening its domestic market's aggregate demand and opening competitive economic sectors only, which led South Korea to become competitive in global markets too. (Alice H. Amsden: Asia s Next Giant: South Korea and Late Industrialisation, Oxford University Press, 1989) and Álvaro J. de Regil: South Korea s tortuous road towards a living-wage ethos, A TLWNSI Living Wage Assessment,, October

17 Main features of the state of manufacturing wage rate in Mexico Comparison with Argentina. Argentina s case exhibits once again the decay of Mexican wage rates and the exploitative nature of Mexico s Mafia state. There is no data for production-line wage rates in Argentina, but the data for all employed in manufacturing is quite eloquent in exposing the demise of Mexico s wage rates. In 1996 Argentina s equalisation index with the US was relatively higher than Mexico s (32 vs. 19). During its deep economic crises of 2002, Argentina s equalisation index gap with Mexico s index was even smaller (30 vs. 21). Yet by 2012, Argentina s real wage rates were 2,95 times those of Mexico, whilst Mexico s were barely 34% of Argentina s (pages 24, 25 and 26). Since 2002, when Argentina s equalisation index was at its lowest point (30) and its PPP real wage rates were only 44% above Mexico s, nominal wages increased dramatically, clearly above inflation, until the change of government and end of demandside policies. There is much controversy about Argentina s official inflation rate, and the Fernández government was accused of manipulating the data. Most analysts question the official rate (between 2008 and 2015) reported by INDEC, the official statistics bureau responsible for this metric. While INDEC reported a 14,4% inflation rate as of October 2015, most estimates double it. The Billion Prices Project from MIT reckons real inflation for 2015 to be at 26,8%, which is still less than the 30,6% nominal rate increase of the manufacturing wage rate recorded in This makes the PPP, based on real inflation estimates, to be at around $1,02 in That would make the wage equalisation index a 54 instead of around 80 if we take the official rate. The controversy notwithstanding, Argentina s wage rates in the manufacturing sector increased, between 2010 and 2015, 58,2% nominally and 10,8% in PPP real terms (in US dollars). This produced a 3 point increase of its Eq-Idx for the same period. In this way, Argentina s manufacturing hourly wage rate improved dramatically its equalisation with the equivalent rate in the US, since 1996, for it increased 69% (from 32 to 54) using realistic inflation estimates. In great contrast, Mexico s wage rates in the manufacturing sector dropped between 2010 and 2015 by -3,1% nominally and increased 10,1% in PPP real terms (in US dollars), with its Eq-Idx gaining one point for the period. As a result of a deliberate economic policy, Mexico s manufacturing hourly wage equalisation index has had almost no change in twenty years and in 2016 is one point below its 1996 index of 19. The contrast in the results are dramatic and clearly exhibit the stark divergence in labour policy. The above notwithstanding, as soon as Macri s Argentinian new government took power, sheer neoliberal policies were resumed, switching to a complete supply-side paradigm. This has triggered a clear regression of Argentina s living-wage equalisation performance. As we shall assess in detail in Argentina s report, its Eq-Idx lost six points in just one year from 54 in 2015 to a mere 48 in This is because the nominal wage rate increase in local currency of 32,7% was not enough to offset the steep devaluation of 37% and the increase of the US wage rate, for the same period. Behaviour of comparative indices of manufacturing hourly real wage rates of each country vis-à-vis the equivalent Mexican wage rate. When performing the preceding comparison with the economies selected for this assessment, there is a clearly consistent trend for each of the countries (Singapore, Brazil, Australia and Argentina: page 26), (Japan, South Korea and Canada: page 27), (Spain, Italy and France: page: 28), (Germany, United Kingdom and United States: page 29) in which almost all countries increased their advantage in their comparative indices vis-à-vis the Mexican equivalent real wage rate after Of the thirteen economies in this assessment, ten ended up with a higher real wage rate index in 2016 than in 1996 against Mexico s real wage rate. Only Canada, Germany and the UK had any meaningful loss in its real wage rate advantage over Mexico. However, all except the UK recorded higher ratios in their comparative advantage over Mexico s manufacturing real wage rates in 2016 than in 2008, at the beginning of the global depression. This is due to the clear pegging of Mexico s nominal wage rate increases to the GDP inflation rate. Indeed, between 2008 and 2016, Mexico s nominal wage rate in local currency increased annually an average of 3,85% whereas the official GDP inflation rate for the entire economy grew by an average of 4,04%, which does not take into consideration the fact that inflation for the Indispensable Basket of Goods is much higher than consumer prices inflation. Mexico s labour share of income. Another metric that confirms the deliberate policy of pauperisation of wages is México s labour share of income, which is by far the lowest among OECD countries since inception. In 2011, Mexico s share of income as a percent of total value added was 28%, whilst the average for all countries was 49,9% (Norma Samaniego Breach: La participación del trabajo en el ingreso nacional El regreso a un tema olvidado, CEPAL - Serie Estudios y Perspectivas México N 157, ONU/CEPAL Naciones Unidas, noviembre de 2014). Relative to the United States which acts as the benchmark for purchasing power parities and, consequently, for wage rate equalisation the trend is also highly consistent, for its wage rate indices with Mexico between 2002 and 2016 increased from 520 to 541. Consequently, Mexico s deliberate policy of real wage containment guaranteed that its living wage rate equalisation gap with the the US, its major trading partner, accounting for 80% of its trade, had all the odds in favour of being sustained or even of getting worse, if the US decided to increase real wage rates however slightly (page 29). If the new government fulfils its campaign promise to increase minimum wages by 15,6% plus inflation annually, starting in 2019, this trend may change and marginally improve real wages and labour s share of income for the first time in many decades. 17

18 Current US dollars The chart below provides a complete illustration of the behaviour of Mexico s wage rates for all employed in manufacturing vis-à-vis U.S wage rates since Mexico s nominal and real wage rates tend to merge because the PPP cost of living increased nearly one-third from 1996 to 2000 onwards until 2014, to then drop in 2016 due to currency devaluation. Thus, while the real to nominal wage ratio was 1,88 in 1996, by 2014 it had dropped to 1,42, but then the peso devaluation made the ratio jump to 1,85 in Concurrently, equalised wage rates continue to increase as nominal US wage rates sustain their annual growth up to As for the wage rate gap with equivalent US wage rates, it has remained virtually at the same level. Given that Mexico s modern-slave-work policy deliberately contains real wages and virtually pegs them to the same Eq-Idx since 1996, the ratio between the US wage rate and Mexico s real wage rate has remained almost the same for the entire period (1996: 5,20 to 1 vs. 2016: 5,41 to 1), reflecting a 4% increase for the twenty-year period. The equalisation index reflects this slight increase of the wage gap with low 18 and 19 indices since Gap between manufacturing hourly wage rate and PPP equalisation index with real US wage rate $22,46 20 $24,95 $17,58 21 $27,35 20 $29,30 $20,49 $20,13 21 $30,47 $21,63 20 $32,78 $34,75 $35,70 $24,00 $24,49 $25, $37,04 $26,06 18 $39,03 $21,15 10 $11,96 $4,32 $5,04 $5,65 $5,79 $6,26 $6,62 $6,41 $6,68 $7,09 $7,22 $3,55 $4,23 $3,98 $4,44 $4,85 $4,52 $4,68 $4,99 $3,91 0$2,30 Equalisation Index US benchmark Mexico equalised wage rate Mexico nominal rate Mexico real rate Sources: WB, US BLS, TCB, OECD 18

19 The chart below further illustrates the policy of wage rate containment followed by Mexico in the case of all employed in the manufacturing sector. Mexico s equalised PPP nominal wage rate in 1996 needed to be $11,96 to be at par with the US wage rate of $22,46. Since the US wage rate has climbed to the level of $39,03 in 2016, Mexico s equalised PPP nominal rate needed to climb to $21,15. Yet, since the policy is to maintain the same equalisation gap assessed in 1996, Mexico s nominal wage rate of $2,30 needed to increase only to the level of $4,07, or an increase of 77%. The actual increase of the nominal wage rate by 2016 was of $3,91, equivalent to a 70% growth. Thus the gap is now worse than twenty years ago. This of course does not illustrate that, prior to the 20 years of wage containment, real wages were systematically eroded from their far less unequalised position, as was observed for production-line workers as well as workers in all economic sectors as previously explained. Comparison of nominal hourly wage rates of Mexico s manufacturing workers to close the gap or maintain the 1996 gap with US counterparts and actual results (US dollars) US Wage rate $22,46 $39,03 Mexico s rate equalised to close the gap $11,96 100% $21,15 100% Mexico s rate to maintain the same gap $2,30 19,2% $4,07 19,2% Actual result of Mexico s rate $2,30 $3,91 19,2% 18,5% $0,00 $13,33 $26,67 $40, Sources: WB, US BLS, TCB, OECD 19

20 Gap between hourly nominal and equalised wage rates in PPP terms for all employed in manufacturing with equivalent US real wage rates (current dollars) Size of gap between nominal and equalised wage rate 8 0 Mexico Equalised Wage Rate Mexico Nominal Wage Rate Sources: WB, US BLS, TCB, OECD 20

21 Gap between equalisation index and size of manufacturing hourly real wage rate gap in Mexico vis-à-vis US real wage rate 0,90 81 % 80 % 79 % 80 % 79 % 80 % 82 % 81 % 81 % 82 % 0,68 0,45 0,23 19 % 20 % 21 % 20 % 21 % 20 % 18 % 19 % 19 % 18 % 0,00 Size of gap Equalisation index Sources: WB, US BLS, TCB, OECD 21

22 Equalisation index comparison in PPP terms of hourly real wage rate with equivalent US hourly wage rate of Mexico and South Korea for all employed in the manufacturing sector ( ) South Korea Mexico Equalisation index comparison in PPP terms of hourly real wage rate with equivalent US hourly wage rate of Mexico and South Korea for production-line workers in the manufacturing sector ( ) South Korea Mexico Sources: WB, US BLS, TCB, OECD 22

23 Mutual proportion comparison of PPP real wage rates between Mexico and South Korea for all employed in the manufacturing sector (number of times) 3,55 4 3,04 3,16 2,82 3 2,49 2,62 2,60 3,77 3,68 3, ,40 1,51 0,66 0,38 0,38 0,36 0,33 0,32 0,28 0,27 0,29 0, Mutual proportion comparison of PPP real wage rates between Mexico and South Korea for production-line workers (number of times) 4 3,46 3,22 2,73 2,79 3,16 3,31 2,85 2 1,82 1,22 1 0,29 0,31 0,55 0,82 0,37 0,36 0,32 0,30 0, Mexico South Korea Sources: WB, US BLS, TCB, OECD 23

24 Equalisation index comparison in PPP terms of hourly real wage rate with equivalent US wage rate of Mexico and Argentina 60 (using unofficial inflation rates for Argentina) Argentina Mexico Sources: WB, US BLS, TCB, OECD 24

25 3 Mutual proportion comparison of PPP real wage rates between Mexico and Argentina (number of times using unofficial inflation rates for Argentina) 2,95 2,78 2,70 2,61 2,50 2 2,23 1,64 1,71 1,78 2 1,44 1 0,61 0,59 0,69 0,56 0,45 0,40 0,36 0,34 0,37 0,38 0 Mexico Argentina Sources: WB, US BLS, TCB, OECD 25

26 Behaviour of comparative indices of manufacturing hourly real wage rates of each country vis-à-vis the equivalent Mexican wage rate (Mexico = 100) Australia Singapore *1996 Brazil data has been compared with 1995 Mexico data. Brazil Argentina Sources: WB, US BLS, TCB, OECD 26

27 Behaviour of comparative indices of manufacturing hourly real wage rate of each country vis-à-vis the equivalent Mexican wage rate (Mexico = 100) Japan South Korea Canada Sources: WB, US BLS, TCB, OECD 27

28 Behaviour of comparative indices of manufacturing hourly real wage rate of each country vis-à-vis the equivalent Mexican wage rate (Mexico = 100) Spain Italy France Sources: WB, US BLS, TCB, OECD 28

29 Behaviour of comparative indices of manufacturing hourly real wage rate of each country vis-à-vis the equivalent Mexican wage rate (Mexico = 100) Germany United Kingdom United States Sources: WB, US BLS, TCB, OECD 29

30 Performance of equalisation indices of manufacturing real wage rate and behaviour of PPP indices Performance of equalisation indices of Mexico s PPP manufacturing hourly real wage rate vis-à-vis the rate of its US counterparts and behaviour of Mexico s purchasing power parity indices. In the following charts (pages 31-35) it is clearly observed that in the case of Mexico in great contrast with the other countries there is no relationship between wage equalisation and PPP indices. If in 1996 the equalisation index was 19 and the PPP 53, by 2002 the PPP had climbed 42% to its highest position (75) but the Eq-Idx increased barely 11% to its highest point (21). Thus PPP cost of living increased by more than two fifths but the Eq-Idx barely improved. Then, the Eq-Idx levelled off between 2002 and 2008 to then drop and remain at its lowest level in 2016, 14% below its best index of 21. Yet the PPP barely moved until 2016 due to a steep devaluation of 29% since The PPP is based on surveys of the consumer price index to assess inflation for private consumption from a global perspective. From a domestic perspective, as this report has shown, the cost of the 40 items of a CBI (indispensable basket of goods) increased 447% between 1994 and 2013, becoming unaffordable for the vast majority of workers, including those employed in manufacturing (pages 14 and 15). An assessment of the behaviour of the PPP and the Eq-Idx shows that, regardless of surges of the PPP or its drop since 2014, the Eq-Idx has remained constant at an extremely narrow band of for twenty years. This is explained by the fact that, as a public policy, real wages have remained deliberately at practically the same Eq-Idx. This is because this is the level of Eq-Idx that is deemed by governments and employers to be competitive in global markets for the benefit of shareholder value at the expense of workers who are deliberately doomed to permanently endure modern-slave-work wages. Needless to say that, consequently, the ratio between the Eq-Idx and the PPP is clearly wider in 2016 than in 1996 (293 vs. 277 respectively). This does not hold true in the relationship between the same indicators for most countries. In addition to Mexico, only Australia, Canada and the UK coincidentally all Anglo-Saxon countries and now Germany show a wider gap between cost of living and equalisation indices in 2016 than they did in 1996 (pages 31 to 35). All other countries have a smaller gap between PPP and their Eq-Idx in the same period. Yet, barring Mexico, the PPP and Eq-Idx curves cross their path, meet or at least approach for all countries, keeping a more logical relationship in the context of economic fluctuations. Indeed, in Mexico the lines of both indices never approach or cross patterns. For the entire period, the Eq-Idx increased meaningfully in most countries or remain the same (Australia and Brazil); only in the UK, Canada and Germany the Eq-Idx is clearly lower. However, Germany is the only country that has always recorded an Eq-Idx above 100, it has never dropped below 112 and is now at 120 vis-à-vis 128 in In Mexico s case, in contrast, the Eq-Idx draws a flat line for the entire twenty-year period, irrespective of the sharp increase of the PPP until 2014, and the Eq- Idx never moves beyond a low of 18 and a high of

31 Performance of 1) equalisation indices of Mexico s PPP manufacturing hourly real wage rate vis-àvis US counterparts, 2) behaviour of Mexico s purchasing power parity indices (cost of living in PPP terms US= 100) and index of 2 over 1 (1=100) PPP to Eq-Idx Ratios: ) Mexico PPP Living Cost 1) Equalisation Index Sources: WB, US BLS, TCB, OECD 31

32 Performance of Mexico s equalisation indices of PPP manufacturing hourly real wage rate and behaviour of purchasing power parity indices (cost of living in PPP terms) with selected countries relative to their US counterparts Australia Equalisation Australia PPP cost of living Singapore Equalisation Singapore PPP cost of living Brazil Equalisation Brazil PPP cost of living Sources: WB, US BLS, TCB, OECD 32

33 Performance of Mexico s equalisation indices of PPP manufacturing hourly real wage rate and behaviour of purchasing power parity indices (cost of living in PPP terms) with selected countries relative to their US counterparts Japan Equalisation Japan PPP cost of living South Korea Equalisation South Korea PPP cost of living Argentina Equalisation Argentina PPP cost of living Sources: WB, US BLS, TCB, OECD 33

34 Performance of Mexico s equalisation indices of PPP manufacturing hourly real wage rate and behaviour of purchasing power parity indices (cost of living in PPP terms) with selected countries relative to their US counterparts Canada Equalisation Canada PPP cost of living Spain Equalisation Spain PPP cost of living Italy Equalisation Italy PPP cost of living Sources: WB, US BLS, TCB, OECD 34

35 Performance of Mexico s equalisation indices of PPP manufacturing hourly real wage rate and behaviour of purchasing power parity indices (cost of living in PPP terms) with selected countries relative to their US counterparts United Kingdom Equalisation United Kingdom PPP cost of living France Equalisation France PPP cost of living Germany Equalisation Germany PPP cost of living Sources: WB, US BLS, TCB, OECD 35

36 Thirteen-year projection of the closing of the real wage rate equalisation gap Projection of real wage rate equalisation in the manufacturing sector for all employed in manufacturing between Mexico and the United States in the term of +/- thirteen years, based on TLWNSI s concept Using the wage rate for all employed in manufacturing in the US in 2016 as the benchmark, the following chart (page 37) illustrates what happens if we apply the minimum wage policy announced by the upcoming government of López Obrador, which starts on December 1st In stark contrast with previous governments since 1982, he plans to increase the minimum wage by 15,6% plus inflation. Given that the minimum wage acts as the benchmark for all other wages, it is realistic to assume that manufacturing wages will increase at a similar rate. This will reduce dramatically the time that would take to close the hourly wage rate gap with equivalent US wages in PPP and dollar terms. Since we do not have data for 2017 and 2018 manufacturing wage rates and the PPPs for private consumption yet, we use the 2016 hourly wage rates as the benchmark to project the time required to close the hourly real wage rate gap of these Mexican workers with their US counterparts, in PPP and dollar terms, applying the new government s aforementioned policy, starting in The assumption is made that the hourly wage rates in nominal terms and the PPP for private consumption for 2016 are valid for 2018, so that we can use them as the benchmark. Hence, we start with the hourly real wage in PPP terms of $7,22 for Mexico and $39,03 for the US. The projection is made assuming a context of stable global economic conditions. This would be reflected in relatively low inflation rates for Mexico and the US. This would assume a sustained growth of Mexico s economy in line with the US economy, averaging 3%, which is less than ideal for a middle-income country, due to its total dependency on the US economy. The assumed average inflation rate of 4,5% is slightly higher than the 4,2% experienced between 2002 and It may be an optimistic assumption given the inherent instability of the global system as well as of the administration of the state proper. Thus, it is likely that inflation will tend to increase as long as governments refuse to regulate the market with a very visible and resolute hand and insist on ceding control of the real economy to the casino-like speculative culture of the institutional investors of the financial sector economy. In this way, despite the absolute certainty of the occurrence of boom and bust periods, both in Mexico and globally, the projection assumes that Mexico s economy will grow with the new government at a relatively optimistic average rate of 3%, vis-à-vis the 2,0% average recorded since The new government plans to grow GDP by 4% yearly. Criteria used in the projection: Average US CPI (inflation): 2% (average of 2,06% between 2001 and 2017). Average Mexican CPI: 4,5% (average of 4,2% between 2001 and 2017). Real value of wages in the US remains constant, increasing nominally by 2%, annually, to neutralise inflation. World Bank indicators recorded a PPP for private consumption of $0, for Mexico, equivalent to 54,2% of the US cost of living in The benchmarks and starting point used in this projection are the PPP manufacturing hourly real wage rates (total compensation cost for both economies for 2016: (US: $39,03 and Mexico: $7,22; and nominal wage rates: $39,03 and $3,91 respectively). Real wage rate figures are shown at constant prices, reflecting future purchasing power after adjusting for inflation. The projection is entirely estimated in US dollars. Inflation is accounted for through the World Bank s PPPs conversion factor for private consumption, and then projected to increase an annual average of 4,5% in US dollars. PPPs are the rates of currency conversion that eliminate the differences in price levels between countries. Results of the thirteen year projection: This projection at no time pretends to forecast what would be the inflationary indices, exchange rates or the wage rate increases that will occur in Mexico or the US in the future. For this projection, the average behaviour of these indicators has been established in a discretionary manner based on the data recorded since 1975 with the only purpose of projecting the level of nominal wage increases required under these assumptions to illustrate the closing of the living wage gap in Mexico. Parting from the assessment of the wage policy, reflected in the behaviour of real wages in the Mexican manufacturing sector since 1975, the probability that this projection materialises, under current State policy, is zero. However, with the new government which campaigned to increase wages significantly planning to increase the minimum wage annually by 15,6% plus inflation, according to the government s project, this may change dramatically. In all previous annual projections, an assumption was made that wages would increase in nominal terms about 10%. This was regarded as very optimistic considering the pauperisation policies of all previous governments. At a 10% rate, our projections showed that it would have taken nearly thirty years to close the wage gap with US equivalent wages. With the new government, the number of years to equalise PPP wages is reduced dramatically to only thirteen years. The chart on the next page shows the behaviour of real wage rates for both the US and Mexico over a thirteen-year period, starting in 2019 with the new government. Nominal wage rates in Mexico were increased an average of 20,1% (15,6% + 4,5%) annually until equalisation was achieved, assuming a 4,5% inflation rate. Results indicate that closing Mexico s wage rate gap at a rate of 20,1% annually, 15,6% in real terms, under the above criteria, would allow manufacturing wage rates to achieve 100% equalisation on year 13 with an increase of only 6,4% in that year. A nominal average increase of 4,5% would be required thereafter to neutralise the assumed average inflation of 4,5% and to keep equalisation with US wage rates under their assumed average 2% nominal annual increase. Not shown in the chart, the projection made Mexico s cost of living in PPP terms in year thirteen (2031) equivalent to 74,2% of the US cost of living whereas it was 54,2% in 2016 due to the fact that the inflation rate for Mexico is assumed to be more than twice the US rate. Closing the wage rate gap would cover the 2019 to 2031 span of time. 36

37 Thirteen-year projection of Mexico's equalisation of hourly real wage rates of all employed in manufacturing with wage rates of its US counterparts, at a nominal growth rate of 20,1% (15,6% real) for 12 years and of 6,4% (1,9% real) on year 13. Equalisation year 13 $60,00 50,49 $40,00 39,03 41,42 43,95 46,64 30,17 $20,00 18,73 11,62 7,22 18,5 % 28,1 % 42,6 % 64,7 % 100,0 % Year 0 3 years 6 years 9 years 13 years U.S. Wage ($) Avg. Inflation 2% Mexico's PPP real wage ($) Avg. Inflation 4,5% Equalisation index reached Not a forecasting analysis. This projection at no time pretends to forecast what would be the inflationary indices, exchange rates or the wage rate increases that will occur in Mexico or the US in the future. For this projection, the average behaviour of these indicators has been established in a discretionary manner based on the data recorded since 1975 with the only purpose of projecting the level of nominal wage increases required under these assumptions to illustrate the closing of the living wage gap in Mexico. Parting from the assessment of the wage policy, reflected in the behaviour of real wages in the Mexican manufacturing sector since 1975, the probability that this projection materialises, under current State policy, is zero. However, with the new government, which campaigned to increase wages significantly and, according to its government project, plans to increase it annually by 15,6% plus inflation, this may change dramatically. Sources: WB, US BLS, TCB, OECD 37

38 Seventeen-year projection of the closing of the gap between the minimum wage and the Indispensable Basket of Goods (IBG) Projection of Mexico's closing of the gap between the monthly minimum wage and the estimated monthly cost of the Indispensable Basket of Goods from UIA-Puebla For the first time in our annual reports, we have prepared this projection as a result of the change of government that will take place on 1st December 2018 and continue its six-year term until 30 November The new government of López Obrador has broken ranks with all previous governments since 1982 by proposing to increase the minimum wage through a specific policy of real minimum wage appreciation. The purpose of this projection is to assess the time line necessary to close the gap between nominal minimum wages and the cost of the Indispensable Basket of Goods (IBG), based on several assumptions that reflect the current situation of general wages in Mexico and the forthcoming government s new policy. Closing this gap would make the minimum wage a living wage for the first time in history, in line with article 123 of the Mexican Constitution, but it will take at least nearly three six-year terms to reach such goal. The benchmark used is the price of P$ ,76 estimated for the IBG assessed in 2014 by Universidad Iberoamericana (UIA) Puebla, which is composed of the Basic Nutritional Basket (monthly cost of P$ 6.563,14) and the Basic Non-nutritional Basket (monthly cost of P$ 9.881,62). We chose this basket as opposed to the baskets designed by the Mexican Government s INEGI, CONEVAL and COPLAMAR, among others. The UIA basket defines a nutritional intake that seeks to achieve the right balance between calories and proteins to provide a dignified, diverse and healthy diet. Furthermore, in contrast with the aforementioned baskets, the UIA basket includes the items needed to prepare the meals for the household, such as oil, gas, etc. Lastly, the IBG includes a non-nutritional basket in order to comply with the right to enjoy the basic goods and services necessary in the daily life of a household to enjoy a dignified standard of living. In contrast with the baskets that have been designed to assess inflation and various poverty lines, the design of the IBG is deliberately directly linked to the minimum wage, which must be enough to provide a dignified quality of life for the household, in line with the Mexican Constitution. (For further detail about the design of this basket see (Informe 2014 del Observatorio de Salarios, Universidad Iberoamericana, Puebla). The other baskets may also include non-nutritional baskets, but are not as comprehensive because they are designed to define inflation or the poverty lines and the segments of the population, which meet the profile of enduring extreme poverty. CONEVAL s nutritional and non-nutritional baskets, for example, defined in 2009, refer to the minimum thresholds of average household expenditures that are used to compare with INEGI s National Survey of Household Income and Expenditures, in order to assess poverty percentages. Their thresholds are not designed to assess the required income to enjoy a dignified quality of life. For instance, CONEVAL had a household income poverty threshold (in 2017) of P$ per month for a household of four, but it clearly states that this is below what could be considered a dignified standard of living (CONEVAL: Canastas alimentarias y no alimentarias, observadas y normativas, JUNE Furthermore, one minimum wage must be enough to provide a dignified standard of living to a Mexican household, which currently is typical composed of four members. The CONEVAL s metric focuses on the entire household income, which could be composed of more than one income earner. Their income metrics are designed to assess the percentage of households that fall below this poverty line. They do not seek to determine the real value required by one minimum wage to provide a dignified quality of life for the entire household as the UIA Indispensable Basket of Goods (indispensable to enjoy a dignified quality of life) seeks to do. Criteria used in the projection: The benchmark is 2014 and the projection starts in 2015, incorporating the official minimum wage rates for and an arbitrary inflation for the IBG. The minimum wage for 2019 is determined by adding to the official 2018 minimum wage a 15,6% annual increment, plus inflation, as planned in the new government s Proyecto de Nación CPI inflation is arbitrarily estimated at an average of 4,5% annually for the entire projection (average Mexican Consumer Price Index (CPI) was 4,2% between 2001 and 2017). The price of UIA s IBG is estimated to grow at an average of 6% annually based on previous measurements. Typically, the prices of these baskets consistently increase substantially more than the CPI for the entire economy. For example, a basket of 100 items, mostly food items, at its lowest retail price increased 5,8% in 2016 (EL INPC: Canasta básica mexicana 2018), whereas INEGI s CPI inflation rate was only 2,8% (COMUNICADO DE PRENSA NÚM. 391/18 23 DE AGOSTO DE 2018 PÁGINA 1/5). The ratio of increase of this specific basket of goods more than doubles the increase of the CPI. However, we chose a conservative increase of only 43% against the average CPI for Mexico of 4,2% for the last sixteen years (4,2% to 6%). Nonetheless, since the arbitrary CPI applied in the projection is 4,5% and the arbitrary average increase of the IBG is 6%, the incremental gap in prices between these two metrics is only a conservative 33%. Moreover, the UIA has not yet updated the price of its 2014 IBG so that we can compare apples with apples. Evidently, if the IBG basket increases at a higher rate, it will take more years to close the gap between the IBG and the minimum wage. The benchmarks and starting point used in this projection are an IBG monthly price of P$ 16,444,76 and the monthly minimum wage of P$ 2.046,74 (P$ 67,29 daily) for For the years 2015, 2016, 2017 and 2018, we apply the official daily minimum wage rates of P$ 70,10; P$ 73,04; P$ 80,04 and P$ 88,36 respectively. For the IBG we apply an average 6% annual increment since In line with the new government s policy, beginning in 2019, the minimum wage is increased annually $15,6% plus an average of 4,5% to account for inflation, for a total average annual increase of 20,1%. An optimistic assumption is made that after the López Obrador six-year term, subsequent governments will continue to apply the same minimum wage recovery policy until it entirely closes the gap between the cost of the IBG and the minimum wage in nominal and real terms. Results of the seventeen-year projection: This projection at no time pretends to forecast what would be the inflationary indices or the rates of minimum wage increases that will occur in Mexico in the future. For this projection, the average behaviour of these indicators has been established in a discretionary manner based on the new governments minimum wage appreciation policy with the only purpose of projecting the time frame required under these assumptions to illustrate the closing of the gap between the minimum wage and the IBG, using reasonable assumptions. Parting from the assessment of the minimum wage policy of the new government, the probability that this projection materialises under the López Obrador six-year term is high, unless he decants on his campaign promise that he specifically put in writing in his document Nation Project However, the probability that the same policy will continue in subsequent governments is strictly contingent on two factors: 1) that the minimum wage recovery policy works and diminishes the gap meaningfully during the period, keeping inflation successfully in check, and 2) that subsequent governments elected pursue to materialise the same political economy philosophy. If subsequent governments, for whatever reason, pursue supply-side, predatory neoliberal policies, as has happened for the last 36 years, the probability that the real value of the minimum wage and wages in general drops significantly is very high. The chart on the next page shows the behaviour of the IBG and the minimum wage over a seventeen-year period, starting in 2019, showing that it will take until year 2035 to close the gap between the minimum wage and the IBG, for a total of seventeen years ( ). We do not count the period, because the minimum wage rates have already been officially implemented for this period. Nominal wage rates in Mexico were increased an average of 20,1% (15,6% + 4,5%) annually until 2034, assuming a 4,5% inflation rate. For 2035, the minimum wage needed to increase only a total of 11,02% to reach the same level as the IBG of P$ 55,905. This would constitute a 100% equalisation between UIA's IBG and the minimum wage. A nominal average increase of 6% would be required thereafter to neutralise the assumed average inflation of 6% for the IBG. Closing the wage rate gap with the IBG would cover the 2019 to 2035 span of time. 38

39 Projection of Mexico's closing of the gap between minimum wage and the estimated cost of the Indispensable Basket of Goods (IBG) from UIA-Puebla Year 17 (2035) $ $ $ $ $ $ $ $ $ $ $ $ $8.065 $2.047 $ % 15 % 27 % 51 % 95 % 100 % Year Cost of Indispensable Basket of Goods (IBG or CBI) with 6% inflation in P$ Mexico's nominal minimum wage (P$) Annual increase of 20,1% until 2034 & 11% in 2035 % of IBG afforded Not a forecasting analysis. This projection at no time pretends to forecast what would be the inflationary indices or the rates of minimum wage increases that will occur in Mexico in the future. For this projection, the average behaviour of these indicators has been established in a discretionary manner based on the new governments minimum wage appreciation policy with the only purpose of projecting the time frame required under these assumptions to illustrate the closing of the gap between the minimum wage and the IBG, using reasonable assumptions. Parting from the assessment of the minimum wage policy of the new government, the probability that this projection materialises under the López Obrador six-year term is high, unless he decants on his campaign promise that he specifically put in writing in his document: Nation Project Sources: WB, US BLS, TCB, OECD 39

40 Prospectus Prospectus. For the first time in more than three decades, real wages across the entire economy may change for the better if the new government that starts on 1st December 2018, keeps its promise and increases the minimum wage as planned by 15,6% plus inflation annually. There is no doubt that powerful domestic business lobbies will attempt to exert maximum pressure to force the new government to increase nominal wages at a far lower pace than planned. For instance, COPARMEX, the National Confederation of Employers, is already pushing for an 11% increase for 2019 including inflation. However, given that it is widely known in Mexican society that, after 36 years of deliberate wage pauperisation, Mexico s minimum wage has become one of the lowest in the world, as low as in Nicaragua, there is enormous pressure to change this immediately, In fact, after more than thirty years of a minimum wage increase below annual inflation or strictly in line with it, the current government was forced to raise the minimum wage for 2017 by 9,6% vis-á-vis a 2,8% inflation in 2016, and for 2018 by 10,4% vis-à-vis 6,6% inflation in The lame-duck government s decision to add an arbitrary amount to the minimum wage above inflation in its last two years, with no evident rationale other than to support the income of workers earning the minimum wage, was only a token to cope with the unrelenting denunciation, domestically and internationally, of its modern-slave-work wage model. We will see if the upcoming government will indeed comply with its promise and implement a well-articulated policy that meaningfully recovers real wages for the entire economy throughout its six-year term. 40

41 Table T5: Living-Wage-Gap and Equalisation analysis (vis-à-vis the U.S.) for all employed in manufacturing in purchasing power parity terms for private consumption for selected economies

42 Table T5: Living-Wage-Gap and Equalisation analysis (vis-à-vis the U.S.) for all employed in manufacturing in purchasing power parity terms for private consumption for selected economies

43 Table T5: Living-Wage-Gap and Equalisation analysis (vis-à-vis the U.S.) for all employed in manufacturing in purchasing power parity terms for private consumption for selected economies

44 *Definitions: v PPPs stands for Purchasing-Power Parities, which reflect the currency units in a given currency that are required to buy the same goods and services that can be purchased in the base country with one currency unit. This analysis uses the US and the US dollar as the benchmark and assumes that the US wage is a living wage. v The hourly manufacturing wage rate is the "hourly compensation cost" as defined by the US Department of Labour, Bureau of Labour Statistics: This includes (1) hourly direct pay and (2) employer social insurance expenditures and other labour taxes. Hourly direct pay includes all payments made directly to the worker, before payroll deductions of any kind, consisting of pay for time worked and other direct pay. Social insurance expenditures and other labour taxes refers to the value of social contributions incurred by employers in order to secure entitlement to social benefits for their employees. v PPP conversion factor, (private consumption) in country currency express the number of country currency units required to buy the same goods and services a US dollar can buy in the US v Exchange rate is nominal exchange rate. v PPP conversion factor, private consumption in US dollars expresses the US dollar units required in a given country to buy the same goods and services a US dollar can buy in the US If the PPP is less than 1, a US dollar can buy more in the country in question because the cost of living is lower, and viceversa. v The PPP for private consumption, expressed in national currency, reflects the exchange rate in comparison with the market exchange rate, which does not reflect the ratio of prices. v Equalised PPP nominal wage rate is the hourly US dollar nominal rate required to equally compensate a worker in a country, in purchasing power terms, for equal work rendered, as the equivalent US worker is compensated. This analysis assumes the US wage to be a living-wage. A living wage is a human right in accordance with Article 23 of the UN Universal Declaration of Human Rights. ILO's Convention 100 of "equal pay for equal work", for men and women is hereby applied in a global context. v Actual PPP Real wage rate is the hourly wage paid in a given country in purchasing power terms. v Actual Nominal wage rate is the nominal hourly wage paid in a given country. v Compensation deficit expresses the wage gap between the hourly nominal wage rate paid (4) and the equalised PPP hourly rate that should be paid for equal work (2). v Compensation equalisation index expresses the ratio of actual nominal pay to equalised PPP hourly pay (4 between 2): or the ratio of actual real pay (3) to the hourly nominal pay benchmark (1) (3 between 1). v Note: Variations in previous years are due to revisions made by the sources, including the World Bank's new 2011 PPP benchmarks, which replaced the previous 2005 benchmarks. v Since 2010 the international comparison of hourly compensation costs (hourly wage rates) between the US and selected developed and "emerging" markets refers to all employed in the manufacturing sector and no longer will be available for production workers only. Production-line wage rates are on average 20% below wage rates for all employed in manufacturing, including production workers, for the period, for all countries included in the assessment. For further reference see wage-gap assessment of trends and differences between production-line and all employed in manufacturing in compensation cost terms here: < Labour%20Resources/Resources/PLWvsAEM_wage_rates96-09.pdf> Sources: analysis is performed using the sources below. (Sources with X indicate that some of their data is directly incorporated in the table:) Database of World Bank's World Development Indicators, X US Bureau of Labor Statistics, August 2013 and The Conference Board, International Labor Comparisons program, February Purchasing Power Parities and Real Expenditures of World Economies. Summary of Results and Findings of the 2011 International Comparison Program. World Bank Purchasing Power parities Measurement and Uses by Paul Schreyer and Francette Koechlin, OECD Statistical briefs, March

45 Note regarding the new 2011 PPC round: The International Comparison Program (ICP) released new data showing that the world economy produced goods and services worth over $90 trillion in 2011, and that almost half of the world s total output came from low and middle income countries. Under the authority of the United Nations Statistical Commission, the 2011 round of ICP covered 199 economies - the most extensive effort to measure Purchasing Power Parities (PPPs) across countries ever. ICP 2011 estimates benefited from a number of methodological improvements over past efforts to calculate PPPs. The ICP s principal outputs are PPPs for 2011 and estimates of PPP-based gross domestic product (GDP) and its major components in aggregate and per capita terms. When converting national economic measures (e.g. GDP), into a common currency, PPPs are a more direct measure of what money can buy than exchange rates. Limitations in the use of the data PPPs are statistical estimates. Like all statistics they are subject to sampling errors, measurement errors, and errors of classification. Therefore, they should be treated as approximations to true values. Because of the complexity of the process used to collect the data and calculate the PPPs, it is not possible to directly estimate their margins of error. Therefore, small differences in the estimated values between economies should not be considered significant. 45