While concerns over a withdrawal of the Federal Reserve's stimulus program may have been behind the recent bout of volatility in emerging markets, bigger headwinds may lie ahead as their labor costs become less competitive.
Emerging markets' value creation – measured as return on equity less cost of equity – is now inferior to their developed peers, mostly as wage growth caused earnings margins to contract, Credit Suisse said in a note.
"Emerging market wage growth has been consistently outpacing (albeit from a low base) overall inflation and is now jeopardizing core-emerging market labor competitiveness and boosting unit labor costs," it said. "The emerging market outsourcing phenomenon has further aggravated margin compression as labor-intensive services have shifted out of developed markets and not all the wage cost increases have been passed back."
(Read More: For Japan, China is losing its competitive edge)
A survey from human-resources and outsourcing services provider Aon Hewitt, released this month, also indicated average wages in emerging markets are rising faster than their developed peers. It showed average expected 2013 wage increases in Africa, Asia, Latin America and the Middle East running at 5.8 percent to 7.2 percent, while North America and Europe are expecting 2.9 percent to 3.7 percent increases.
In developed markets, the share of gross domestic product (GDP) devoted to wages remains on a downtrend amid a slow economic recovery, but emerging-market labor's strong pricing power has stabilized and even increased the GDP wage share by around 200 basis points in around three years, Credit Suisse said.