Calculating salaries in various countries

Factual Questions
1

Does anyone know of a web site where you can compare the values of a comparible salary in different countries.

I’m not just talking about a direct conversion of the currency, but also taking in account the cost of goods.

For example
$35,000 US
is approximately
24,000 pounds in the UK

But what can you buy with those amounts in the respective countries? How much do you need to make in one country to have the equivilant buying power of the other?

Throwing in tax considerations into the equation would be nice, but not essential.

Thanks…

2

I tried a simple search on google with “international salary comparisons cost living” and came up with a bunch of sites. No idea how accurate they are or how much they take into accountso I would check several of them. With taxes keep in mind that if you are an american citizen moving to a low tax area may just mean that you will have to pay US taxes as well though I imagine this wouldn’t happen outside a tax haven. Also medical insurance may be a big factor.

3

Sort of depends on what you are trying to do: are you trying to compare purchasing power, or are you trying to compare salaries?

First of all, what NOT to do is to simply convert salaries using some currency exchange. The currency exchange reflects what the banks, governments, and huge currency traders feel is the relative value of a currency. This is what you would get if you wanted to convert USD 100 into British sterling, for instance. The conversion rate changes every day, and it has nothing to do with the purchasing power of a currency or with salaries in a country.

If you want to compare purchasing power between countries, you should use a Purchasing Power rate of exchange (this is based on buying the same market basket of goods in each country, it used to be called the “Big Mac” standard based on buying the notorious sandwich in each country, but it’s got way more sophisticated.) I don’t have a link, there are a few sources that compute such. The Economist Intelligence Unit publishes Purchasing Power rates, as do a few other sources, I think the OECD, frinstance.

If you’re looking for comparison of purchasing power, than those are the conversion rates to use.

There are other sources – for instance, Union Bank of Switzerland publishes a pamphlet that shows various prices for similar commodities in different cities around the world.

If you want to compare salaries, for instance to know what a certain position is paid in different countries(like, 5 year experienced secretary, chief accountant, geologist, CFO, senior programmer, whatever), the only way to do that is to look at survey market data in each country. (You would need to have clearly defined positions – a Head of Sales for a huge multinational firm will pay more than the same position at a small local firm. Salaries also differ by industry, by geographic area, and by service/experience. In some countries, by gender as well.)

As far as I am aware, such information is not available for free (alternately: you get what you pay for). I would be very dubious about any free information, but it depends on what you need it for and what level of accuracy you care aobut. It is extremely costly to do such a survey well and accurately, and firms that have such data sell it. If you are interested in learning more about what’s available, email me (be sure the subject line is clear.)

You may be able to find some sites in each country where you could glean some individual information.

Hope that helps. Your question is kind of broad, and this is a detailed, complicated subject involving statistics and the like.

[Edited by C K Dexter Haven on 03-15-2001 at 08:34 AM]

4

To add to what C K Dexter Haven said: Purchasing Power Parity (PPP) is the starting place for this sort of stuff, but it gets real complicated real quick. PPP is a fancy version of the law of one price (LOOP). Taking various thngs into account the prices of internationally tradeable goods should be the same everywhere, because if they weren’t (almost) riskless profit opportunities would exist and people would exploit them, eliminating the differential.

However, there is a significant non-tradeable sector (many services, like haircuts and domestic services) which means that calculating by actual exchange rates or using PPP measures can be misleading. The PPP numbers are also significantly distorted by the size of large economies like the US and by the large informal sectors of countries like India and China.

What this means is that frequently it is very difficult to make cross-country comparisions even across quite large apparent income differentials. (Recalling from a seminar a few years ago) the average wage in Australia would not buy the average bundle of goods in Canada and the average wage in Canada would not buy the average bundle of goods in Australia due to the quite large relative price differentials remaining after international trade. IIRC this lack of dominance would apply to countries 10-15 places up and down the PPP income scale, meaning that whilst you could say that the average US wage would buy more than the average bundle in (say) Algeria, you’d be pushing to say it about South Africa (which is pretty surprising).

FWIW friends of mine who have gone to the UK from Australia say they can earn the same number in pounds as they would in Australian dollars (ie triple their salary) and that this is just worth it if you go to the Continent on weekends. :slight_smile:

5

Agreeing with picmr’s comments, all the way.

Just to add that the problem with the Law of One Price is that it reflects a theoretical model, but not reality. Reality is that prices for some things ARE much cheaper in some locations than in others, in part because labour is much cheaper, and in part because major corporations sell things at prices to try to maximize profits (hence, a different relative result if there is lots of competition in a country, frinstance.)

In the same vein, economic theory says that the exchange rates and inflation rates should be reasonably parallel, so that the relative purchasing power of currencies should remain reasonably constant. This is somewhat true among stable currencies if you get far enough away from the charts and squint your eyes – thus, PPP rates are relatively stable over the short term – but it aint true if you look closely, or if you include some of the less stable currencies.

6

I’m pretty sure that I read an article that Cecil wrote on this subject & he figured in the tax rates too. Let me see if I can find it.