Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Economics and wage'apartheid'

Last week. The Moscow Times ran a story calling attention to the large difference in pay scales between Russian and Western staff at most foreign firms ("Wage 'apartheid' a thorny issue for business", March 13).


The article made people mad. "Who would come if the labor weren't cheaper? " asked one irate businessman who stopped me in the street. "Would you work for Russian wages? " a caller asked. "What does the author pay her driver? " another caller fumed.


I was not at all surprised that the story generated such emotional responses. After all, this newspaper also uses a two-tier wage system, and we've had a few uncomfortable moments over it ourselves. But the pay structure is a recognition of another kind of justice, albeit a cold hearted one -- the market value of labor.


In Moscow there are two labor pools, each with radically different pay scales. Foreigners are paid on a world scale; if they can earn more in Paris, New Yoric or Tokyo, then they'll pack their bags and leave (or never come in the first place). Companies whose missions require foreign labor have no choice but to pay world scale wages. Locals -- Russians -- are paid on the domestic wage scale. What the article pointed out was that the local scale is so much lower than the world scale that a kind of "wage apartheid" seems to exist


In addition to this base difference between wage scales, companies must also compensate foreigners for the extra cost levied them in a two-tiered pricing policy that charges foreigners dozens of times more for Aeroflot tickets, hotel rooms and apartments. Piled atop this is a "hardship differential" analogous to a shift-differential paid to third-shift factory workers.


From an accountant's perspective, expats are a kind of necessary evil to be replaced by local labor whenever possible. Ideally (no judgement on foreigners), no mission here would have expatriates, and the staff would be all locals. This would solve the "thorny" dilemma of wage "apartheid" by elimi-nating the need for two pay scales, not to mention slashing the high operating costs of employing foreigners.


Unfortunately (again, depending on how you look at it), for the time being foreign firms need expatriate labor to look after company interests. That labor is expensive, so the cost must be built into the cost of goods sold here. It also, no doubt, discourages some businesses from coming to Moscow in the first place.


Still, the story and the community reaction call attention to how disquieting some of us find this heartless beast called macroeconomics. But to label this "apartheid" is like standing in an elevator as it begins rising and deciding that gravity just increased because you felt heavier. You need only to step out-side the elevator to see the truth about inertia and Newton's first law of motion.


The key to the dilemma is that the difference in wage scales is not a reflection on the quantity, quality or any other measure of a person's work. It is a consequence of the very market principles this nation is now trying to embrace.


As to the question of whether it's light or not, well, that's politics not economics.