Sub-standard Pay = Super-sized Profits

Chinese staff at McDonald'sThe big news in China the past couple weeks has been about Western fast food chains (McDonald’s, KFC and Pizza Hut) underpaying their staff in China – particularly the part-timers.

The issue was sparked by accusations from China’s top trade union that McDonald’s was underpaying their employees (Reuters/China Daily), in some places by almost half, and also forcing them to work full-time hours, while only providing part-time benefits.

From Shanghaiist:

Out of the cities mentioned … the largest gap is in Zhengzhou McDonald’s, where the wage is 3.9 RMB/hour and the legal minimum wage is 7 RMB/hour. By the way, working for 3.9 RMB an hour sucks.

To put the money into perspective, the 7 RMB/hr. minimum wage is $0.90 USD. So, according to reports, many McDonald’s employees are making about $0.50/hr.

My problem with this is not if McDonald’s (or other IJFPs) are not paying the required minimum. My problem is, why the hell are they paying just the minimum?

Charlie over at Positive Solutions has a good post where he makes the point that these multi-national corporations are only following what is common practice in domestic restaurants.

In a country where 10% of the 1.3 billion people still live on less than a dollar a day, it is inevitable that there are always going to be a huge number of people prepared to accept chronically low wages – because that’s the best they can get.

Should McDonald’s and KFC adopt a higher ethical standard and ensure their staff get paid a comfortable wage? Maybe, but wages starting at 4 kuai per hour and rising is actually above what the market necessitates. After all, working in a fast-food joint requires a minimum in skills and training – when the vast majority can do the work, why pay well above what the vast majority would expect and accept?

Now, I agree that it’s 100% hypocritical for Chinese media to overplay the “Imperialistic West taking advantage of poor Chinese” line, as Chinese businessmen are quite happy to do it to poor Chinese as well. However, it’s just wrong.

And though noodle restaurants pay paltry sums, they also charge equally minimal sums. Their margins, when compared to big Western franchises, are relatively small (a bowl of noodles is rarely more than 5 kuai).

The IJFPs however, charge near Western prices for their products, but exploit a cheap local labour market to fluff their bottom-line. Starbucks, for example, charges about the same price for their Tall Cappuccino here in China as they do in Seattle. However, their employees back in the US make a considerably higher wage.

Lets, for a moment, assume fair play to the crafty multinational that can boost profits by bringing big franchises to the masses of China. And lets again assume that they are actually paying minimum wage. Then the argument really becomes: “They’re paying the required amount, a waged based on the country’s cost of living, so what’s the problem?”

Surviving does not equal living

Well, the problem, quite frankly, is that a minimum wage of 7 RMB/hr. is a joke and doesn’t at all reflect the cost of living. What equals “cost of living” in the West becomes “cost of surviving” in China – a subtle semantic difference that translates heavily for those that live it.

Lets make some gross assumptions about people and assume that the Europeans work too little, the Asians work too much and the North Americans are somewhat of a median between them. Using this, a work week of 40-44 hours with two days off, is somewhat standard.

In the US, with an average minimum wage of about $6.50 USD, an employee can expect to make approximately $1,250/mo. Whereas in China, using the same standard of life, the average employee would only earn 1,350 RMB or $175/mo.

But the cost of living is much lower in China, right? Well, as shown above, not if you want to buy Lattes or Big Macs. Though it’s true that many things in China are considerably cheaper, they are only so if you recognize that they do not meet quality standards matched in the West.

Western brands of food, apparel, electronics, etc., all come with a price tag that looks remarkably like the ones in New York, Sydney and Toronto, for one reason – quality. Domestic brands are plagued by poor quality standards with limited avenues for customer recourse. There’s a reason there are tight quality controls on products in Western countries – the consumers demand it. In China, the consumers can’t afford to demand it, but don’t they deserve it?

In a common second-tier Chinese city you can expect to find moderate two-bedroom accommodation for about 1,500 RMB/mo. Using the figures above, it’s easy to see this is more than the average Chinese person makes using our “standard of life” model. Compared to the equivalent in the US (with rent of about $600/mo.), it quickly shows the vast inequality in the two standards of what “minimum wage” is.

When you couple in food, bills, savings for health related expenses, etc., the number of hours needed to work quickly gets inflated, and/or the quality of expenses are forcibly lowered; creating a market for shoddy products, dilapidated accommodations, and cheap restaurants – and so the cycle continues.

Business Karma: what goes around, comes around

In my opinion, though ultimately it is the responsibility of a government (and its people) to create greater equality and narrow the wealth gap, I do think that these Western companies could be doing a lot more to encourage it themselves. The thing is, narrowing the wealth gap by paying people a better wage is not without profit.

When you’ve got a small, but rich, group of elite burger-buyers on one side and a massive mob of poor wishing they could on the other… it’s not much of a market. Most Western companies looking to sell in China are developing their brand here now, so that as the country “rises”, they’ll be on the ground floor to take profit from all those new consumers.

So, why aren’t these companies helping create those consumers? Why do they sit and wish they had more people buying biscotti and burgers, Adidas and iPods, but only pay their staff enough to eat instant noodles and a boiled egg five nights a week?

Talk on Sub-standard Pay = Super-sized Profits


9 Comments
  1. Profile photo of Sean

    My dig has always been why are they blaming the multi-nationals when most of these places mentioned in your article and the original are franchised to local Chinese owners?

    The image of fat white men in business suits using whips on their poor Chinese slave workers just isn’t real. The people who are throwing up these KFCs are locals.

    Starbucks is a little different. Recently Seattle has repurchased all of their Beijing and Tianjin store and put them under Seattle management. That is a new strategy and I am not sure why they have done it. If anyone has the scoop on that, I would love to hear it.

    On the other hand I have talked to people working at the Kuaike (local version of 7-11) and they pay 900 RMB a month and you get two days off a month. This does not include housing or food. Its about 4 an hour.

    I hate to say this and it is a little off subject, but I am a little glad that Starbucks is so expensive. They have managed to keep out much of the riff-raff that KFC and McD’s has accepted.

    I cannot tell you haw many times I have been to KFC or McD’s in Beijing and cannot find a seat because some jack-off that isn’t and hasn’t and never will eat anything is taking a nap or reading Duzhe in what shouuld be customer seating. They seem to have become like rest-stops or public sleeping lounges.

  2. I believe it comes down to demand and supply. The IJFP has a demand for labor and is offering a certain wage. There is a large supply of people willing enough to work for that wage. If people were not willing to work for such a low wage then the IJFP would be forced to raise wages.

    To get a realistic feel for how good the wages are at these IJFP then you need to compare them to other businesses in China. Comparing them against franchises of the same name in other countries isn’t comparing apples to apples.

    All that aside I think that the businesses must be responsible for paying at least the minimum wage. It is the government’s responsibility to ensure that the minimum wage is set appropriately and enforced.

  3. Profile photo of

    Charlie from Positive Solutions used the “supply and demand” model for justifying underpayment as well.

    The big kink in that concept is that there’s no way for the workforce to demand more. No simple way at least.

    If you have a countryside full of poor (below the $1/day poverty level standard) people, of course you’re going to have a labour pool that is willing to work for shite pay in horrible conditions, as the only alternative is picking bottles out of the trash or death.

    These people don’t have enabling factors in their lives. They aren’t at that financial level to make any sort of demands about pay.

    @Sean: you’re absolutely right that these labour abuses are rarely via “fat white guys” – and I’m sure that near all labour abuses in China are performed by fellow Chinese. It’s no secret that no group of people have fucked the Chinese over more than themselves and the whole idea of “foreign abuses” is a tired scapegoat.

    But this is where foreign multinationals should take responsibility for their brand. My point (and this goes back to what you were saying Shaun) is that a company should not have different standards based on local employment climate.

    Employees should be paid enough to live in a comfortable way. Not all Chinese business can afford to do that, but multinationals can. So if the min. wage is 7RMB/hr., but this is quite obviously not enough to live, and not the equivalent of what their employees would make in a more “developed” country with better labour laws that actually protect employees, not employers, then it should be re-evaluated.

    The government, for all its worth, is going to be looking after business, not the rights of employees – proof in the 7RMB an hour minimum wage. I’m not saying it’s not their responsibility as well, of course it is, but I don’t think multinationals should be able to hide behind government regulations for doing something they know is exploitive and they couldn’t get away with in their “home” country.

  4. I feel somehow ashamed of our government. Well you guys should know that many times PRC government broadcasts some negative news mostly out of their own interests, or some particular political purposes, especially when these news have something to do with “Imperialistic West”. Take the “SK-II” event for example, if this cosmetic is really that poisonous, why couldn’t the government reveal the truth earlier, say at the time when the company just started to enter our market. Now it has thrived for so many years and has harmed so many custormers, even if the company promises to make compensation it’s hard to retrieve a gorgeous face again.

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  6. Profile photo of Alex

    Is it exploitation to offer someone dangerous working conditions compared to nothing? Is it exploitation to offer 300-500 rmb per month with a shared bedroom and basic meals, compared to a shared room and meals, but no/little money? That is the choice that millions of Chinese, from construction workers to waitresses, face.

    Is it exploitation to live in the apartments built by those working for 300 rmb per hour (and somewhat ‘lucky’ they don’t get ripped off by their construction firm for this)? Is it exploitation to eat at the local hole-in-the-wall restaurant for 5 rmb (how much money do they make per day compared to the number of employees)?

    We exploit. But we can also be more fair. China does have law and it does have come-back. But only when companies, and customers, are responsible. If we boycott McDonalds will it make Chinese companies more fair, or will it replace McDonalds by a less reputable employer (not saying anything, positive or negative, about McDonalds)?

    I do not know the answers to these questions. I do know that China has a huge income and wealth inequality. I know that many (perhaps most, but I lack a survey to quote) of the exploited employees are working to buy a house in their hometown, and could with 10 years’ of work (such workers are invariably migrant workers). I know that the legal rights of many employees are abused.

    People being paid a low wage isn’t necessarily what needs to be spoken about. Exploitation is, but being paid a low wage isn’t necessarily exploitation (in the ‘fair’ rather than ‘supply side’/Marxist sense).

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