Location-Based Pay : Exploiting Inequality in Remote Work
The great remote work experiment has not only been a success in the west. It has grown into a global phenomenon that has changed the career trajectory of millions of professionals and employers worldwide.
It has broken down the location and visa barriers to employment, allowing businesses to access whole new pools of talent worldwide.
It has also become incredibly profitable. According to Global Workplace Analytics, employers save over 11,000 dollars annually per employee from reduced real estate fees and less overhead costs.
Forbes referred to remote work as the biggest legacy of Covid-19, but while there are more opportunities for people regardless of their location, their salaries haven’t budged.
Some companies and entrepreneurs have used this as an excuse to outsource skilled labor to professionals in Africa and Asia at a fraction of the cost. They are using a centuries-old concept called “Location-based pay” despite not offering enough to cover monthly living expenses in new metropolitan cities like Lagos or Kuala Lumpur.
What is Location-based pay?
Location-based pay is a form of compensation determinant on an employee's location, such as their city, state, or country. It is in direct contrast to job-based pay, where compensation is determined exclusively on the employee's job description, experience, value, and skills.
Traditionally, businesses have paid their employees based on where they lived and worked over the years. Employees in New York earned higher than workers in Tulsa working in similar roles, and the difference can be around 10 - 20 percent.
But since the pandemic accelerated remote work, businesses have begun working with professionals in other continents and the difference in compensation has increased, with professionals in other parts of the world earning as little as 20% of what their counterparts in Europe and America earn for the same job.
An example is a Nigerian software developer who was offered $10,000 for a Kubernetes engineering position at a US company. According to ZipRecruiter, the average annual pay for Kubernetes Engineers in the United States is $147,732.
Is location-based pay an excuse for companies to exploit and use African talents without appropriate compensations?
According to a survey by GroWrk, 14 out of 15 African respondents have been offered a significantly lower amount of money than their counterparts from other parts of the world for a job or service.
Does The Average Cost of Living Match Location-Based Pay?
Contrary to popular opinions, the average cost of living doesn't justify location-based pay. Many professionals in the digital workforce live in urban cities where the cost of living is higher than the rest of the country by several zeros.
The infrastructures and opportunities needed by skilled professionals such as electricity, fast internet, and networking opportunities can only be found in big cities.
According to Mercer's 2021 Cost of Living Survey, Lagos ranked 19th out of 209 cities, making its cost of living comparable to New York, London, and Moscow based on the minimum wage.
On the list were several other African cities, such as N'djamena in Chad, ranking 13th above New York City, and Libreville in Gabon, ranking 20th on the list. For example, a one-bedroom apartment in Libreville costs $1500, while the average monthly salary is only $500.
The assumption that the cost of living in cities in African or Asian countries is cheap is not just false, it is pure laziness when a 10-second google search can provide the true metrics.
It is also discriminative and biased for companies to negotiate salaries based on how much they think a person needs to survive in a particular location. The nuance of survival and living well differs from person to person.
Companies that argue that professionals in Africa need less to survive never factor in the cost of cars, gadgets, and clothing, which are often more expensive in Africa and Asia than in western countries. For example, a 16-inch Macbook Pro | M1 Pro 10-Core | 512GB costs $2,224 in the US, while it costs $3,838 in Lagos, Nigeria.
Is Location-based Pay Ethical in Remote Work?
Policies such as location-based pay are business decisions, which can sometimes be amoral and unethical.
Businesses are only operated to maximize profit, not lift people out of poverty.
However, there is a big difference between taking a 10% pay cut to move from San Francisco to Charlotte and paying a virtual assistant $5 an hour in the Philippines because it is higher than the average hourly pay.
The unawareness in this post is breathtaking. From their description of people in other countries being more grateful for work than in the U.S to how blown away they are by people in the Philippines being able to understand loom videos.
The average minimum wage in the Philippines is 527 pesos a day or around $10. So these workers are making about 4 times more than their peers a day, but is it equivalent to what the company is saving?
Any company whose revenue model involves exploiting loopholes to avoid paying fair wages, benefits, etc., in return for services is in the business of exploitation.
The structure of modern corporations or the startup grind, can easily lack ethical responsibility and encourage penny-pinching budgets with the wrong founder.
Just like setting up clothing factories in Bangladesh, the most time-intensive digital tasks can be outsourced while having minimal impact on tight overheads. But as we move closer to a connected, globalized society, we need to get rid of this logic.
Remote work shouldn't be a reason for companies to run digital sweatshops.
It has democratized opportunities for professionals and skilled workers to gain employment without relocating, and businesses are provided a reservoir of young - global talent.
Compensation and working conditions should be based on how much value they will generate for the business. In a system where companies often pay their CEO 351 times more than their most junior employee, they can afford to pay international workers equivalent to their cost of living.
They only outsource work because they know they can get away with paying far less to people who don’t have a choice.
Outsourcing historically has been used to drive down wages in countries with higher costs of living. In fact, “Low-income countries” are defined in most cases by greed and exploitation winning out over the respect of the laborer.
Their political and community institutions are too weak to make sweeping labor changes after suffering through hundreds of years of slavery, then colonization, and now corruption, all in the interest of maximizing profit of foreign investors.
Why should international companies perpetuate these systems that have caused so much inequality and suffering in the world?
Another interesting thing about employers who favor location-based pay is their hypocrisy.
They are no reports of a company increasing compensation when employees move to a location with a higher cost of living.
In the instance of the company that offered to pay a Nigerian senior engineer $10,000, would they ever offer that same amount of money to an American senior engineer living in Nigeria?
Is it safe to say that the location-based policy exerted on professionals in low-income countries results from prejudice and discrimination, which are remnants of racism and colonialism?
Why Should Companies Get Rid Of Location-Based Pay?
Results are what matter, not location!
Companies should stop obsessing about location and focus on what matters (i.e., business results). Abolishing location-based pay will increase the productivity levels and output of remote workers. Even for professionals in low-income countries, getting paid an amount that truly represents one’s skill, experience, and time can buoy self worth and confidence.
Most importantly, it will have a profound impact on the general welfare of the communities where these workers live.
In Africa and some other continents, there's a belief that the community raises a child, so, in turn, the child can raise communities. When someone "makes it" financial support is expected from the rest of their family that struggled to provide for them.
Education and welfare of kids are communal affairs; hence when black professionals start earning, they always give back to their communities.
This financial support will be utilized to help others through school, provide social amenities, and in turn improve the opportunities for the rest of the community.
This is why the nuance of what it takes to survive and the true cost of living in many countries cannot be accurately gauged as there are a lot of factors. Although a cultural phenomenon, how many companies consider "black tax" when negotiating salaries with remote workers in Africa?
If a company decides to hire internationally to save on labor costs they should:
- Ask the right questions and factor in the nuance of being an international professional who also have families instead of putting these professionals into the “low cost of living” and "cost saving" box.
- Research the cost of living of the city where their candidates are from before making an offer.
- Don't use the average minimum wage in their country as a reference for salary. Calculate the value that they would be providing to the company and translate that to the local currency.
- Create a uniform standard for your salaries that is either location-agnostic or considers every factor for someone's living expenses.
Is the future of work a standard wage for a role regardless of location? Or will it continue the same exploitative practices of the past to maximize profit?
As companies hire overseas they should have ethical standards and there will be more resources for their employees to help their families and communities, improve their skills, and achieve a perfect work-life balance.
Grow remote with GroWrk. We provide and manage laptops, devices, other equipment and services to remote teams in over 150 countries.