New Delhi, Oct 1 (KNN) Wage gap between emerging and advanced economies will shrink significantly by 2030, suggests a report by PwC, implying that wages in countries like India, China and the Philippines will catch up with those in the developed economies.
“This reflects both higher labour productivity growth in emerging economies and expected long-term appreciation of their currencies over the period to 2030. It also reflects the marked tendency since the late 1990s for real wages in advanced economies to rise more slowly than productivity growth, which we expect to continue at least in the short term, although it may fade in the longer run,” the PricewaterhouseCoopers (PwC) report said.
According to a PwC release, India and the Philippines remain at the lower end of wage projection in relative terms, but average wages in India could more than quadruple over the period in real dollar terms and more than triple in the Philippines. Real wages in the UK and US are projected to rise by only around a third over the same period, remaining at similar levels to each other.
More striking is how substantially the wage gap could close by 2030. India’s current average monthly wage is around 25 times smaller than that of the UK. By 2030, it’s likely it be only 7.5 times smaller. Average wages in US are currently 7.5 times greater than in Mexico, but the gap could close to a factor of less than 4 times by 2030. Over the same time period, the average monthly Chinese wage could rise to around half that of Spain, it said.
“While any such projections are subject to significant uncertainties, the direction of change is clear. The large wage advantages enjoyed today by many emerging economies will shrink as their productivity levels catch up with those in advanced economies and their real exchange rates rise as a consequence,” said chief economist at PwC, John Hawksworth.
As far as China is concerned, as its relative wage levels rise, it will become more attractive as a consumer market and less important as a low cost production location. This will also apply to other middle income emerging economies such as Poland, Turkey, Mexico and South Africa.
However, countries such as India and the Philippines could become more attractive manufacturing locations due to their continued relatively low wage levels compared to China, but only if they can provide the right institutional environments and improve their transport and energy infrastructure.
Significantly, current economic problems in India may also impact upon firms’ willingness to expand there in the short term, but the country still has great long-term potential, it said.
The PwC analysis is based on estimates of relative average monthly wage levels from the International Labour Organisation (ILO), projected forward to 2030 using results from PwC’s latest ‘World in 2050’ report.