Actually, a company's attitude toward this problem has to be balanced. I live in a country where most international companies pay less than the US and even the EU average. The effect is quite easy to predict: they are not attractive to senior candidates (i.e., Nokia) and suffer from higher employee attrition (not right now, as the job market is pretty dead). I don't want to mention the effect on employee morale. Is it discrimination, as the author says? When you do exactly the same job in the same company, same department, same team, with the same output — then definitely it's discrimination. Does it encourage various xenophobic behaviors coming from better-earning employees - very rarely, but yes. Is it legal? — Yes.