Brazil's wage gap charts: manufacturing production line wages.

How does globalisation impact poor people? One way is through its effect on workers’ wages in developing countries, particularly in the context of multinational coorporation (MNC) operations. Looking at recent trends in manufacturing wages in Brazil, new analysis released by the Jus Semper Alliance now examines how market liberalisation influences the North-South wage gap.

MNCs profit from the low cost of labour in developing countries, which nonetheless allow them to maintain the quality of their products. While the developing country MNC workers may receive wages that are higher than the minimum wage, they are unlikely to be paid a living wage, one which allows them to fulfill their basic needs and which is in fact a human right. Meanwhile, MNC workers in developed countries performing the same or an equivalent job are paid significantly more than their Southern counterparts. As a result, the gap between wages in the North and the South is widening.

North-South wage analysis entails the application of a developing country’s Purchasing Power Parities (PPPs) to the real wages of a particular category of U.S. workers. This produces the equalised wage rate that a worker in the developing country should be earning in order to be at par in terms of purchasing power with the equivalent US worker. The North-South wage gap is measured by comparing the equalised wages with the actual wages of similar workers in the country in question.  

Taking the case of production-line manufacturing wages in Brazil from 1996-2006, and comparing these with wages in Mexico, an economy of similar size, the report finds that:

• in 2006, manufacturing workers in Mexico and Brazil earned only 17% and 37%, respectively, of what equivalent workers in the US were earning
• while the hourly equalized manufacturing wage in Brazil increased by 5.6% between 1996 and 2006, a decrease in hourly manufacturing wages meant that the equalization level of Brazil’s manufacturing wage overall fell by 20%
• although nominal wages in Brazil increased by 18% in 2006, since Brazil’s PPP cost of living increased, as did equivalent nominal wages in the US, manufacturing wages in Brazil only increased by 2.5% in real terms

Not only are Brazil's manufacturing workers better-paid than their Mexican counterparts, there are also lessons to be learnt from the Mexican experience so far. In the context of the world financial crisis, the report concludes that Brazil must now shift from a supply- to a demand-side economic paradigm to more significantly reduce the wage gaps that currently prevail.