All countries around the world are keeping a close eye on inflation. In fact, the levels are particularly alarming in certain countries. Other countries are faring better, but none of them can rejoice for being out of the red zone. Workers are sour and are seeking raises. This would be counter-productive, according to some economists, but is vital, according to others.
The rising cost of living is suffocating people who had until now been spared from hardship and privations. What about expats? Have their wages been adjusted? In which countries have their wages increased more significantly? Does that compensate for the rise in the cost of living?
Has there been a rise of expat packages?
They were assumed to have disappeared with the pandemic and new work dynamics. But expat packages indeed still exist. And they're doing pretty well in some countries. An expat package is a combination of benefits that aim to facilitate an expat's life abroad. This package includes the basic salary (the key element that needs to be negotiated with the employer) and various subsidies, notably a “cost of living subsidy” that the employee can negotiate for if the country they are relocating to is expensive. Allowances for moving houses, transport, childcare and schooling, etc., are also part of the package. Most of the time, these benefits compensate for the drastic lifestyle change of expatriates (especially when expats move with their families).
In Singapore, Japan and Taiwan, expat packages have increased by 9% to 10% in 2021. In China and Malaysia, expat salaries rose by 11% in 2021. Expat packages also got higher in Australia and New Zealand. However, these percentages hide significant disparities. First of all, these raises come after a year marked by Covid-19. Wages had decreased by an average of 1000 dollars throughout 2020. Salaries had shrunk, and living expenses had gone up: health expenditure, housing costs, food, etc. Some xpats were able to rely on the assistance of their companies (not always the case) and/or of their country. But again, this is about compensating for inflation rather than real income increases.
Record-breaking inflation rates worldwide
Even if expat wages in Malaysia have increased by 11%, their benefits remain among the lowest when compared to Japan (the winner when it comes to expat packages), India and China. At the same time, inflation keeps going up. The Malaysian government reported in June that prices had increased by an average of 3.4%. They keep going up from month to month. Food, transport, dining out and household supplies are the most affected areas. A 6.1% price hike for food, 5.4% for transport, 5% for dining out and hospitality, and 3.4% for household supplies have been recorded.
In Australia, inflation has climbed up to 6.1% in June. The government fears an inflationary spike of over 7% by the end of the year. It is expected to be the worst economic crisis the country has faced since 1990. In Japan, inflation was “only” 2.2% in June. But we shouldn't look at only this figure. The price rise is mainly due to the cost of energy, which is not likely to drop anytime soon. Inflation is breaking records everywhere: +8.9% in the euro area, +9% in the United States, +8.1% in Canada. In South America, inflation rates waver between 3% and 10%, with an inflationary spike of +50% in Argentina or even +500% in Venezuela. However, the causes for inflation are deeper in these two countries, which were suffering from economic issues for a long time. The same goes for Africa, where the highest inflation has been recorded in Soudan (+245%) and in Zimbabwe (+86.7%). In other African countries, inflation ranges between 2% and 20%.
Salary increases to meet the rising cost of living
Do wage increases actually compensate for the rise in the cost of living? Do locals and expats enjoy the same advantages? It should first be highlighted that not all expats enjoy expat packages. These benefits remain reserved for certain jobs and correspond to an ideal of global work mobility which is no longer in line with reality, as is the case of the “golden expat package” and its multiple bonuses. High-profile jobs are generally entitled to these packages, not other workers. International assignments come with a cost, and during the pandemic, it was one of the first areas of expenditure which was cut by companies.
Many expats are thus seeing their incomes shrink as much as locals as they are faced with the constantly rising cost of living. The most privileged expats are the only ones who enjoy a strong expat package. Meanwhile, others have to navigate the uncertainties of inflation and an unstable environment. Still, expats are rethinking their moving abroad plans, considering both wages and the cost of living. They would rather move to Singapore or Malaysia, where the cost of living (even not in times of economic crisis) is lower than in Germany or the United States. This strategic decision, of course, takes other elements into account, starting from planning a move to these countries.
