If wage rates are lower in Mexico than in Germany, labor costs per unit of output can still be higher in Mexico.

Question

Quizplus · Accepted Answer

Labor costs per unit of output depend not only on wage rates, but also on factors such as productivity, technology, and input prices. If productivity is lower in Mexico than in Germany, for example, then even with lower wage rates, it may take more labor to produce each unit of output in Mexico, resulting in higher labor costs per unit.

If Wage Rates Are Lower in Mexico Than in Germany