Is the wage gap between expats and locals a function of the market – or plain old discrimination?

By Li Ying Source:Global Times Published: 2016/5/18 19:13:01

Foreigners working in China are often given generous expat packages with various benefits. Photo: IC

Allison (pseudonym) only found out the salary of one of her colleagues, a Chinese woman in her 20s, after the colleague left the English language training company that they both worked for.

While it's common for Chinese teachers in the field to earn less than their Western counterparts, Allison, an English teacher in Beijing who is Irish but grew up in the US, was still surprised at the discrepancy in pay.

"I would get 150 yuan ($23) per session when I worked overtime. But she made 30 yuan per hour when I was in the room with her, and 60 yuan per hour when she was teaching alone," said Allison.

When it came to base salaries, the gap was even wider. "The Chinese teachers' base was 2,000 yuan, compared to about 11,000 yuan for foreigners," she said.  

According to a recent study by the Economic & Social Research Council (ESRC), a UK governmental body, there is a significant gap in wages in lower-income countries, with expats making 400-900 percent more than their local counterparts. The survey drew on the participation of around 1,300 local and foreign employees from the humanitarian aid, education, government and business sectors in six lower-income countries, namely India, China, Malawi, Uganda, the Solomon Islands and Papua New Guinea.

The organization, which published its findings, among other places, in The Guardian in April, concluded that this disparity cannot be attributed to either differences in experience or skills, but rather to the fact that expats are coming from economies with higher average incomes, and therefore demand higher pay.

While the wage gap has long been a bone of contention in international offices, triggering dissatisfaction among local employees, in China at least, it may not be the case for long. Experts expect that the gap between foreign and local talent will shrink as China's economy continues to catch up with developed countries.

Chinese employees may start with a low salary when they first start working after graduating from university, but they have more chances for promotions and raises once they are established. Photo: IC

Source of the gap 

In 2015, a report by HSBC focused on global expats found that about 25 percent of expats living in China earn more than $300,000 a year - the highest percentage of expats earning that high of a salary anywhere in the world.

Allison's father, who worked from 2007 to 2009 as a manager at an American multinational company in China, was among the expats who enjoy high salaries in China. "There is no reason to move his family and put all that stress on the whole family if it doesn't benefit his career and his bank account," she said.

In addition to his US-level salary, Allison's father also received an expat package that covered accommodation, healthcare, transportation and their children's school tuitions - all benefits that local staff are never eligible for.

For example, the company provided a housing allowance of $10,000 per month, and also paid for their furniture to be shipped to Beijing. As the company's insurance policy did not permit them to drive themselves, they were given a family van with a driver. International school fees for all three children were also completely covered, at a staggering annual rate of $22,000 each.

"This would let the transition of life to China as easy as possible," Allison said.

While these perks may sound extravagant, they've proven an effective tool for Chinese companies that want to go global and raise their product standards to recruit experienced foreign talent.

That was one of the draws for Sky (pseudonym), a German product design manager in the fashion industry who in 2011 was convinced to move her career from France to China.

"If you are a mid-level or higher manager, companies pay for you to come here," she said.

"[That includes] housing, relocation, family expenses and school fees. Of course, the salary is higher than that of the locals."

Sky has a master's degree in fashion design and rich working experience. Her value for the Chinese company lay not only in product manufacturing, but also in helping educate and train the Chinese staff in how to create their own ideas instead of simply copying other brands.

At the time, Sky said her wage was comparable to what companies in the US would be paying, and even higher than the salaries in most European countries.

Even some small Chinese companies are willing to pay more for foreigner workers. "[Chinese companies] need to match the [global] market," said Allison, citing a friend who works for a small startup in China and makes about twice the wage his local coworkers are paid.

"The company cannot even provide him with a work visa. So I believe it's a bit of face for the boss, a little, 'I can afford to hire a foreigner,'" said Allison. "And of course the company hopes the whole staff will benefit from the 'knowledge' and 'open mindedness' or 'Western thinking' of the foreigners."

Sowing resentment among local staff

Understandably, salary disparities can cause "resentment and dissatisfaction" among local employees, according to the Guardian report which cites a study in Singapore on the relationship between local and expat managers.

Zhang Qiang (pseudonym), who works at the Beijing office of a Japanese multinational company, said although she could accept salary disparities among upper-level management, she believes it's unfair that Japanese graduates and employees in lower-level positions at the company are paid higher than their local colleagues who have lots of working experience.

"For example, we have a Japanese colleague who is very young. His salary level is comparable with a local employee with more than a decade's experience."

In Zhang's opinion, entry-level Japanese employees have no special expertise apart from their native language skills. "Our company also recruits Chinese graduates of prestigious Japanese universities, who are also paid much less than Japanese people."

Effects on the market

Eric Liu, a consultant with Foreign HR, which recruits foreign talent to Chinese companies, said salary disparities among people of different nationalities are common around the world, and stem from the variation in different employees' roles, experience and talents - especially when what they have to offer is scarce in the local market.

"It has been decided by the market," said Liu.

For example, China has seen increasing demand for foreign teachers but only a small number of qualified applicants, said Liu.

"It is therefore natural to pay foreign teachers higher salaries and more for housing, airfare, longer paid holidays and so on." 

While Liu believes salary disparities among top-level talent will continue to exist in the long term, he said, in general, the wage gap between expats and locals in China will likely become smaller.

"As China's economy continue to grow and the number of Chinese multinational companies [such as Lenovo, Huawei, Xiaomi, Haier, ZTE, GreatWall Auto] increases, the economic gap between China and developed countries will shrink, resulting in a smaller salary gap between Chinese and expats," he said. 

In some industries, in fact, local employees are already commanding higher salaries. Sky said when a friend of hers in the film industry wanted to find a camera man, she found that local talent tended to request higher pay than foreigners.

"My friend said she would rather pick a German or European guy, because they just ask for 2,000 euro ($2,256.2) in China," said Sky.

"But for Chinese cameramen, you can't even start with 2,000 euro. For the well educated and experienced ones, the price goes really up." 

In Sky's opinion, the economic recession in European countries has been a key factor in the number of foreigners flocking to China looking for work. This, in turn, has led to greater competition and, in some cases, falling wages.

"In Shanghai, some foreign designers work for less money, because they just want to find a job. But they are starting to drag down salaries," she said.  

Meanwhile, despite the fact that foreigners often start with high salaries that are comparable with those in their home countries, Chinese employees have more chances to be promoted and ask for higher pay.

At the first Chinese company Sky worked at, she noticed her assistant started at a salary that she considered unbelievably low.

"In China, it is like when you graduate, maybe you just start with 5,000 or 6,000 yuan. But once you are established, let's say, maybe you have worked for three years, you can demand a raise of more than 10 percent, which you can never get in Europe," she said.

"Finally I noticed I was not really that different from a Chinese manager, because they got promoted and their salaries continued to go up," she said.

Newspaper headline: Income injustice

Posted in: Metro Beijing

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