CHAPTER 14
Pay and Benefits Outside the United States
Learning Objectives
14-1. Explain the pertinent concepts for quantifying important economic elements in the
discussion of pay and benefits outside the United States.
14-2. For North America (Canada and Mexico), summarize key facts about wage and salary,
paid time-off benefits, and protection programs.
14-3. For South America (Brazil), summarize key facts about wage and salary, paid time-off
benefits, and protection programs.
14-4. For Europe (Germany), summarize key facts about wage and salary, paid time-off
benefits, and protection programs.
14-5. For Asia (India and the People’s Republic of China), summarize key facts about wage
and salary, paid time-off benefits, and protection programs.
Outline
I. Introduction
II. Pertinent Concepts for Quantifying Economic Elements in the Discussion of Pay and
Benefits Outside the United States
III. North America
IV. South America
V. Europe
VI. Asia
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. End of Chapter Case; Instructor Notes, and Questions and Suggested Student
X. Crunch the Numbers! Questions and Suggested Student Responses
XII. Assisted-graded Questions
XII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions
and Suggested Student Responses
Lecture Outline
I. Introduction
A. Overview
1. Globalization has resulted in a high level of interconnections between the
economies of various parts of the world
2. U.S. employers will increasingly conduct business with entities in a variety of
other countries as former underdeveloped parts of the world experience
tremendous economic, trade, and standard of living growth
3. In addition, the move from traditional manufacturing to knowledge- and
service-based employment also means that jobs as well as markets are more likely
to be dispersed geographically
4. Sometimes other countries impose stricter control over terms of compensation
than the U.S.
II. Pertinent Concepts for Quantifying Economic Elements in the Discussion of Pay
and Benefits Outside the United States
A. Overview
1. The gross domestic product (GDP) describes the size of a country’s economy,
where size is expressed as the market value of all final goods and services
produced within the country over a specified period
2. GDP per capita generally indicates the standard of living within a country, the
larger the per capita GDP, presumably the better is the standard of living
3. Purchasing power parity exchange rate (PPP) is the worth of all goods and
services produced in the country valued at prices prevailing in the United
States
4. Per capita expenditure on health care is the sum of public health expenditure
and private expenditure on health, helps compensation professionals
understand the standard of health care
5. Methodological differences make cross-country comparisons of reported
hourly compensation difficult
III. North America
A. Overview
1. Mexico, Canada, and the United States are part of a trade bloc known as NAFTA
—the North Atlantic Free Trade Agreement
2. NAFTA called for the elimination of duties and the phasing out of tariffs over a
period of 14 years
3. Trade restrictions were removed under NAFTA from such industries as motor
vehicles and automotive parts, computers, textiles, and agriculture
4. The labor side of NAFTA is the North American Agreement on Labor
Cooperation (NAALC)
5. Created to promote cooperation between trade unions and social organizations in
order to champion improved labor conditions
B. Canada
1. Constitutional monarchy that is also a parliamentary democracy and a federation
consisting of ten provinces and three territories
2. Per capita GDP—$44,500 and labor force—19.21 million
3. The market-based Canadian economy is very similar to that of the United States’
4. Canadian law holds that labor and employment law fall within the exclusive
jurisdiction of the provinces
5. Federal legislation cannot override provincial laws, even when the industry or
employer primarily conducts business overseas (except in the cases where the
industries are expressly assigned to federal jurisdiction)
6. Wage and Salary
a. Canada does possess a statutory minimum wage law
b. At the federal level, there is an obligation placed upon provincial governments
to establish minimum rates of pay by or under an Act of the legislature
7. Paid time off benefits
a. Canadian employment law holds that employees are entitled to between eight
and nine annual paid holidays as well as two weeks paid vacation time along
with a sum of money as vacation pay (increasing to three weeks after six years
of employment)
b. The amount of vacation pay is equal to two percent of the employee’s pay for
the preceding year per week of vacation
c. Employees are eligible for a total of 17 weeks of benefits during pregnancy
and after childbirth
8. Protection benefits
a. Pensions and retirement benefits
i. Canada has two state pension plans
ii. One for Quebec residents only and one for the rest of Canada
iii. Both funded by matching contributions from employers and employees
and fully portable upon employment changes, much like 401(k) plans in
the United States
b. Health and disability benefits
i. Medical and basic hospital care in Canada is paid for by provincial
medical insurance plans with compulsory coverage for all residents and
funding revenue derived from both general federal taxation and from
provincial taxes
ii. Even though public health plans normally do not provide employed
persons with prescription drugs except while they are hospitalized,
additional benefits are provided by private supplementary insurance by
employers, including dental and vision care
C. Mexico
1. Mexican labor law is based on the Constitution of the United States of Mexico,
adopted in 1917
2. Per capita GDP—$17,900 and labor force—52.9 million
3. Wage and salary
a. The Mexican government requires that two minimum wage rates be applied:
i. The first, general minimum wage, applies to all workers and the amount
depends upon the region of the country
ii. The second is the occupational minimum wages that are higher than the
general minimum wages
b. Occupations that require greater skill, knowledge, and experience are
compensated at higher rates
6. Paid time off benefits
a. Workers are entitled to paid time off during public holidays and workers
required to work during a mandatory holiday are entitled to double pay
b. Female employees are entitled to maternity leave—six weeks prior to giving
birth and six weeks after birth on full salary
c. Employees are entitled to six vacation days after being employed for one year
and to two more days for each subsequent year, up to a maximum of twelve
days
7. Protection benefits
a. Social security
i. Social security programs in Mexico are administered by the Mexican
Social Security Institute
ii. Protect employees in the matters of occupational accidents and illnesses,
maternity, sicknesses, incapacitation, old age, retirement, and survivor
pensions, daycare for children of insured workers, and social services
iii. The system is financed by contributions from workers, employers, and the
government
iv. Workers with at least 52 weeks worth of payments into the system who
withdraw are entitled to continue making voluntary payments
b. Pension and retirement benefits
i. Effective July 1, 1997, all workers must join the mandatory individual
account system, which is slowly replacing the former social insurance
system
ii. At retirement, employees covered by the social insurance system before
1997 can choose to receive benefits from either the social insurance
system or from the mandatory individual account system
c. Health benefits
i. Medical services are normally provided directly to patients (including
old-age pensioners covered by the 1997 law) through the health facilities
of the Mexican Social Security Institute
ii. Benefits include general and specialist care, surgery, maternity care,
hospitalization or care in a convalescent home, medicines, laboratory
services, dental care, and appliances, and are payable for 52 weeks, but
may in some cases be extended to 104 weeks
d. Other benefits
i. A national system of worker housing exists paid for by employer
contributions in the form of payroll tax fixed at five percent and helps
workers obtain sufficient credit for the acquisition of housing
IV. South America
A. Overview
1. Brazil, Argentina, Colombia, and Chile are the largest economies in South
America
2. The biggest trade bloc in South America used to be Mercosur, or the Southern
Common Market, comprised of Argentina, Brazil, Paraguay, Uruguay, and
Venezuela as the main members and Bolivia, Chile, Colombia, Ecuador, and Peru
as associate states
3. The second-biggest trade bloc was the Andean Community of Nations made up of
Bolivia, Colombia, Ecuador, Peru, Venezuela, and Chile
B. Brazil
1. The Consolidation of Labor Laws (Consolidacao das Leis do Trabalho) accords
many employee benefits the status of fundamental constitutional rights and in
general the employment relationship in Brazil is highly regulated by statute
2. Per capita GDP—$15,200 and labor force—110.9 million
3. Wage and salary
a. Minimum wage imposed
b. In accordance with the Federal Constitution, the minimum wage rate is
nationally uniform and set by law
4. Protection benefits
a. Social security
i. The social security system that went into effect in 1991 details various
benefits for workers in Brazil
ii. Comprehensive social security benefits are provided by law to all workers
regarding retirement for illness, old age, or length of service; death benefit
pensions; assistance during imprisonment of worker; savings fund; social
services; professional rehabilitation assistance; work accident payments;
maternity leave payments; family salary support; accident insurance; and
sick leave benefits
b. Pensions
i. Social insurance is provided to employed persons in industry, commerce,
and agriculture, domestic servants, some categories of casual workers,
elected civil servants, and the self-employed
ii. The monthly benefit is equal to 70 percent of average earnings plus 1
percent of average earnings for each year of contributions, up to a
maximum of 100 percent
iii. Employees contribute 8.5 percent of gross earnings, and voluntary
contributors and members of cooperatives contribute 20 percent of
declared earnings
c. Health benefits
i. Medical services are provided directly to patients in rural and urban areas
through the Unified Health System and include such benefits as general,
specialist, maternity, and dental care; hospitalization; medicines (some
cost sharing is required); and necessary transportation
V. Europe
A. Overview
1. The European Union (EU) is a unique international organization that aims at
becoming an economic superpower while still retaining quintessential European
practices such as high levels of employment, social welfare protection, and strong
trade unions
2. Under the laws of all Member States, employers must provide employees with a
written document about the terms of the employment contract
3. The concept of “employment at will” does not exist in the EU as in the United
States
4. All member states either have specific legislation or unfair dismissal or general
civil code provisions that apply to termination of employment contracts
5. The EU Website reports that community labor law was designed with the aim of
ensuring that the creation of the Single Market did not result in a lowering of
labor standards or distortions in competition
6. On the basis of article 137 of the treaty, the Community shall support and
complement the activities of the Member States in the area of social policy,
particularly minimum requirements at the EU level in the fields of working and
employment conditions, and with regard to the information and consultation of
workers
B. Germany
1. The integration of the former East German economy is a strain on the overall
economy of unified Germany, leading to high unemployment rates
2. Per capita GDP—$44,700 and labor force—44.76 million
3. Germany’s labor laws provide considerable voice to labor and job security to
employees
4. Wage and salary
a. Minimum wage in Germany is not mandated by the government, and is
established through the collective bargaining process
b. Two types of collective agreements:
i. Association agreements are made between trade unions and employers’
associations
ii. Company agreements are made between trade unions and individual
employers
c. An extension of either type of agreement to other sectors or employers may be
granted upon the request of at least one party to the collective agreement
6. Paid time off benefits
a. The statutory minimum vacation has been set at 24 working days (or four
weeks since Saturdays are counted)
b. Younger workers have a right to a vacation of 25 to 30 working days; disabled
workers have an additional five days of vacation
c. Expectant mothers can take 6 weeks’ leave before the due date and 8 weeks
after giving birth
7. Protection benefits
a. Pensions
i. Germany has a statutory pension system analogous to the Social Security
system in the United States
ii. Employers offer the company pension plan and a tax-favored investment
plan
b. Health insurance
i. German laws stipulate guidelines for the minimal health welfare of
workers
ii. For blue collar workers (and some white collar workers) mandatory state
health insurance premiums are shared equally by the insured and by the
employer
iii. Employees whose income exceeds a certain amount can opt out of the
state plan and purchase private health insurance
VI. Asia
A. Overview
1. Asia has several trade blocs including the Asia-Pacific Economic Cooperation, the
Asia-Europe Economic Meeting, the Association of Southeast Asian Nations, and
the South Asian Association for Regional Cooperation
2. Given the wide variation and diversity in the world’s largest and most populous
continent, however, there is no unifying economic body like the EU or NAFTA
that represents all the countries of Asia
B. India
1. Indian economy is growing steadily, but is plagued with income disparity and
developmental challenges
2. Per capita GDP—$5,900 and labor force—502.2 million
3. The Directive Principle of State Policy has statutes that affect various aspects of
the employment relationship such as working conditions and participation in
management
4. There are wide variations between the public and private sectors, with the
Ministry of Labour and labor laws governing employment relationships in the
public sector and more employer discretion allowed in the private sector
5. Wage and salary
a. Minimum wage is fixed by an authority dual system
b. Minimum wage rates are determined by the government for certain sectors,
and a collective agreement determines others
c. Minimum wage rates for occupations that are largely nonunionized or have
little bargaining power may be set in accordance with the Minimum Wages
Act, 1948
6. Paid time off benefits
a. Leave is usually calculated for each year based on the number of days worked
in the previous year and if worker does not take all of the accumulated leave it
is allowed to roll over to the succeeding calendar year up to a maximum of 30
days
b. There is no statutory provision of holidays or paternity leave but maternity
leave is allowed in the form of paid time off and possible medical bonus
7. Protection benefits
a. Pensions
i. First and current laws regarding pensions were passed in 1952
(employees’ provident funds), with amendments in 1972 (payment of
gratuity), 1976 (employees’ deposit-linked insurance), 1995 (employees’
pension scheme), and 1995 (national social assistance program)
ii. In 2004, a voluntary old age, disability, and survivors’ benefits scheme
was enacted
iii. Voluntary coverage exists for employees of covered establishments with
monthly earnings of more than 6,500 rupees, with the agreement of the
employer and for establishments with less than 20 employees if the
employer and a majority of the employees agree to contribute
iv. Provident fund contributions include 12 percent of basic wages (10
percent of basic wages in five specified categories of industry) in covered
establishments with less than 20 employees and some other specific cases
v. The maximum monthly earnings for contribution purposes are 6,500
rupees (1 USD = 46.3 rupees)
b. Health Benefits
i. State governments arrange for the provision of medical care on behalf of
the Employees’ State Insurance Corporation
ii. Services are provided in different states through social insurance
dispensaries and hospitals, state government services, or private doctors
under contract
C. People’s Republic of China
1. The PRC monist state characterized by a fast-growing economy that has shifted
from a centrally planned system to a more market-oriented one.
2. Per capita GDP—$12,900 and labor force—801.6 million
3. The PRC Labor Law was established in 1995, resulting in a break from the
traditional “iron rice bowl” system of employment, with a shift from state-owned
enterprises to private ones, a move which has given rise to new employment
relationship issues
4. Since the introduction of the PRC Labor Law the employment relationship is now
defined by individual contracts
5. Wage and salary
a. According to China’s Labor Act, 1994, the State possesses the responsibility
to implement a system of guaranteed minimum wages
b. There is no national minimum wage rate in China; instead, minimum wage
rates are set by region
c. Separate standards are stipulated by provincial, regional, and municipal
peoples’ governments for their respective regions and reported to the State
Council for consent
d. The provisions concerning minimum wages apply to enterprises, private
non-enterprise entities, individual industrial and commercial households with
employees (the employing entities), and the laborers who have formed a labor
relationship with them
6. Paid time off benefits
a. The length of an employer-approved medical treatment period generally
depends on employee age and period of service and can range from 3 to 24
months
b. Employees who have worked for 1 to 10 years are entitled to annual paid
leave of 5 days, 10 days for those who have worked 10 to 20 years, and 15
days for those who have worked 20 or more years
c. Employees who have worked for more than one year are entitled to “home
leave” if they do not live in the same place as their spouse or parents
c. Women are entitled to no less than 90 days of maternity leave starting 15 days
prior to birth
7. Protection benefits
a. Pensions
i. There has been a new law to decouple the employment relationship from
the social insurance system, setting up a unified basic pension system with
social insurance and mandatory individual accounts
ii. Coverage includes employees in urban enterprises and urban institutions
managed as enterprises and the urban self-employed
iii. Employees of government and communist party organizations and of
cultural, educational, and scientific institutions (except for institutions
financed off-budget) are covered under a government-funded,
employer-administered system
iv. An employee contribution to mandatory individual accounts is 8 percent
of gross insured earnings
v. The minimum earnings for employee contribution and benefit purposes
are equal to 60 percent of the local average wage for the previous year
vi. The maximum earnings for employee contribution and benefit purposes
vary, but they may be as much as 300 percent of the local average wage
for the previous year
b. Health insurance
i. A unified medical insurance system exists with all employers and workers
participating in this system; employers contribute six percent of payroll
employees contribute two percent of their salary.
ii. Health insurance is based on Basic Medical Insurance Fund consisting of a
Pooled Fund and Personal Accounts
iii. Employees’ contributions go directly to their Personal Accounts and 30
percent of employer contributions are paid into this account
iv. The social insurance fund reimburses the cost of the medical benefit from
10 percent up to 400 percent of the local average annual wage
End of Chapter
VII. Key Terms
Gross domestic product (GDP): The size of a country’s economy expressed as the market
value of all final goods and services produced within the country over a specified period
GDP per capita: Generally indicates the standard of living within a country
Purchasing power parity exchange rate (PPP): The worth of all goods and services
produced in the country valued at prices prevailing in the United States
Per capita expenditure on health care: The sum of public health expenditure and private
expenditure on health