Wednesday, February 16, 2011

Why are Expatriates paid differently to local people?

Most countries have a two tier Pay Market. The two distinct pay markets are typically an Expatriate Market and a Local Market.


The Expatriate Market is largely determined by the origin of each Expatriate. It is quite normal to have considerable differences between Expatriates doing exactly the same job, in the same country. These differences are largely caused by three factors:

  • The Cost of Living difference between the Home Country (country of origin) and Host Country (where they work)

  • The Relative Hardship difference between Home and Host Country. For example, ,moving to a country where more day to day hardship will be experienced, would normally result in more pay to compensate for the hardship

  • The Exchange Rate difference between the Home and Host Country


On the other hand the Local Market is largely determined by local supply and demand for skills.


Depending on a number of factors, such as the availability of skills, rate of economic growth, and the type of economy, the percentage of expatriates versus locally employed people will vary.


Expatriate Pay is typically calculated by using the Expatriates salary in their Home Country as the start point and by calculating an appropriate salary in the Host Country using the Cost of Living difference, relative hardship, and exchange rate. This is either done using a company in-house policy or using an international relocation calculator.


Local Pay is typically determined by the prevailing market salary levels. These salary levels are typically reported in salary surveys run by independent Remuneration Consultancies.


We can conclude therefore that Expatriate Pay is primarily determined by factors outside the host country as well as differences between the host country and the Expatriate's home country.  Local Pay is primarily determined by factors within the country, such as strength of the economy and the supply and demand for skills.

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