Wage rates are often the starting point for global manufacturing country selection and reshoring decisions. With new, pending, and existing tariffs, now is the time to reevaluate U.S. costs and potentially bring manufacturing back to America. Companies often compare costs in various regions of the U.S. to look for competitive economic locations.
The Reshoring Institute has published research on the minimum wages in the largest cities in each state in America. While minimum wages do not paint the entire cost picture, this data is a starting point for further investigation.
High labor content vs. low labor content
The first step is to evaluate the amount of labor that goes into manufacturing a product. If a product has a high labor content in its cost structure, then the company producing this product would look for locations in low-cost/low-wage countries. Products with lower labor content—those products made in highly automated factories—have more location options, including some regions in the U.S. For example, a company that produces apparel in a sewing factory, with lots of people sitting at sewing machines would look for low-cost production environments in places like Indonesia, Vietnam, Bangladesh, El Salvador, and Honduras. However, a company producing textiles where fabrics are produced by machinery with very few employees, has more location options, including within the U.S. Most products fall somewhere in between high labor and full automation, thus wage rates often become a critical decision factor regarding where to locate.
Lowest wages are in the rural South
As expected, the lowest U.S. minimum wages are in the rural south and the less populated states. The highest minimum wages are in the east and west coastal areas.
In some states, wages in rural areas are at the bottom of what is mandated by state law. However, in these rural areas, the labor pool may not be sufficient enough to sustain operating there.
Federal minimum wage
States are guided by the federal minimum wage, which is set by the U.S. Congress at $7.25 per hour. States can raise that wage to whatever they choose but they are constrained to at least give the minimum that is set by the federal government.
For example, Alabama has a minimum wage set at $7.25, which under federal law, is the minimum that employers must pay. Cities do have the option to raise that wage within their local districts but in this case, Alabama wages are uniform throughout the state. Wages in Tuscaloosa are going to be the same as wages in Montgomery.
On the flip side of this is California where minimum wages are set at $16.50. In this case, the local government takes matters into its own hands. In San Francisco, minimum wages are set at $20.96, to counteract rising housing costs but in Southern California wages are different. In the city of San Diego, minimum wages are set at $17.25. This is an example of how state law sets minimum wages throughout the state, but cities have the option to go higher.

Other factors
Of course, several other factors like unemployment rate, business environment, local training and education, and quality of life for employees must be considered in location decisions. But if companies are looking for a low-cost environment with a viable workforce, we suggest you start with minimum wage, the unemployment rate, and the available workforce. These numbers give you a starting point for location decisions.
The entire Minimum Wage Study is available for downloading on the Reshoring Institute’s landing page at www.ReshoringInstitute.org
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