According to this website, the cost of living in Norway is almost double, on average, than the cost of living in the United States. Let’s assume this is accurate.
I went to Oslo on a business trip in the 90’s, and while I don’t remember much from my visit one thing I really don’t remember is how expensive everything was in comparison to where I was living at the time (the SF Bay Area).
I am currently living in Northwest Montana, and the cost of living here is about 20% less here than the Bay Area, and I notice it whenever I go to a local store or look at a real estate listing. Moving from Montana to California would be difficult for most people born and raised here, but imagine moving from the US to Norway?
What the chart doesn’t show in per capita income, which I presume is much higher in Norway than the US, or everyone would be dirt poor, which is clearly not the case. I know they pay more taxes there which covers health care and education, and the cost of gas is higher along with fresh fruits and vegetables. So how exactly does it work?
Does everyone in Norway make twice as much on average than a person in the US? Do they just spend a lot less money than we do? How do people who live in Norway, Switzerland, Denmark and Venezuela afford to live where they are living? Something just doesn’t add up. If all of a sudden everything cost twice as much as it does now I would have a noticeably harder time making ends meet.
What it means, I think, is that exchange rates (in this case, between the US dollar and the Norwegian krone) do not accurately reflect the relative values of the two currencies within their own country. If you got twice as many krone to the dollar, the cost of living in Norway would not appear to be twice that in the US, but about the same. Exchange rates are set largely by currency markets and, to some extent, reflect the costs of certain commodities and the varying levels of supply and demand for them in different parts of the world, but these things are only loosely related to the costs of everyday life, and people’s earnings, within a country.
I think you’ve already experienced the answer. How did people in the Bay Area make ends meet as opposed to people where you live today? Don’t get distracted by exchange rates and currency: basically, people in high cost of living areas make more money and sometimes do without some things, but overall a middle class person lives mostly a middle class life in either place.
The final column in the table depends on the average wage in that country. So the average Norwegian can afford goods and services equivalent to 94% of what a New Yorker can. The U.S. average of local purchasing power is 133% of New York’s.
That final column might be roughly comparable to the tables at this Wikipedia page, though there will be major differences depending on the implied basket of goods. (Least relevant for many comparisons is the well-known U.N. cost-of-living scores for expat executives, with a basket including many imported goods.)
One of the drawbacks with these comparisons is that they have to assume a uniform pattern of expenditure between different cities. So you look at what, say, a typical middle-class New Yorkers spends his or her money on, and then price those goods and services in Oslo, or in Paris, This ignores the fact that the typical resident of Oslo or Paris may have very different preferences and habits as regards expenditure.
Residents of one city may buy prodigious quantities of something precisely because it is cheap there - data telephony service, say. If they lived in a place where that was very expensive, they would maximise their welfare by buying less of it, and instead buying more of something that is relatively cheap in the other city - theatre tickets, maybe, or beer. To say which of them is better off requires a value judgment as to the relative satisfaction to be got from using your phone or tablet, going to the theatre, or drinking beer. You can argue the toss either way, but it’s not really an argument about cost of living any more.
So, in the table linked in the OP, we know that residents of Oslo are about 6% worse off than residents of New York city if both are buying the same basket of goods and services. But it’s highly likely that they’re not.
I can only speak for the Norwegian case, but you have to take some points into account.
Firstly, Norway has oil reserves. They are tiny compared to the ones owned by other countries, but Norway has been extremely good at investing the oil profits wisely. This has made Norway’s economy perhaps the strongest in Europe, with virtually no unemployment, very high GDP and wages. A (Swedish) friend of mine went to Norway to work as a receptionist at a youth hostel; some months she could earn around $6,000. So yeah, I guess wages are high.
But another point that UDS touches on is that in European countries you often have to buy fewer things (and services) than in the USA. Norway in particular is a country that follows the Nordic welfare model. What does this mean? Essentially, that everyone’s university education will be free of charge. You probably won’t need a car as Norwegian cities have good public transport and bicycle lanes. The most you will ever pay in medical costs is around $200 a year, and that’s if you go to the doctor at least 10 times. And if Norway follows the Swedish system in this area (I’m not sure), even your own funeral will be free of charge, paid for through taxes.
So yeah, stuff is ridiculously expensive in Norway but I doubt that you’d need to pay for as much of it there as you do in the USA.
Also - as you point out yourself, there are wide discrepancies within countries, especially between the larger cities and country towns. In the UK, it is horrendously expensive to live and work in London, and very much cheaper to live somewhere like Herefordshire or Yorkshire. No doubt Oslo is more expensive than Bodø and Bern more expensive than Neuchâtel.
I live in Switzerland and can tell you that people here earn A LOT. Yeah, things are expensive, but I found that at the end of the month I was saving more than I ever was in the US, and in fact, unlike in many places in North America and UK, it is still possible for a family to live on a single income.
FWIW, my Swiss salary history actually posed a bit of a problem for me when I was applying for jobs in the US. I was afraid of inadvertently getting priced out of the US job market…
This is somewhat true in Switzerland, but not as much as you might think. The population density here is such that probably 90 percent of the population lives within commuting distance of one of the major metro areas (Zurich, Geneva, Berne, Basel, or Lausanne)*. Even the smallest villages are relatively close to a city, and therefore property and rents are expensive pretty much everywhere.
don’t quote me. This is my own made-up statistic. But I bet I’m not far off…
I guess that while the cost of living is high in NY, Tokyo, Paris, Oslo and London, people who leave in these places have figured out a way to get by. Of course not everyone is high paid, so you have to come up with a way to stretch your money. You can live in an apartment with other family members, do without a car, shop at the cheapest stores etc. You somehow survive on whatever money you have… or you move someplace cheaper. If I lived in NYC I would be paying more for everything than where I live now, and that would mean cutting back or not saving as much as I am now. I marvel at anyone who can live in a high costs place and continue to save money while enjoying life. It’s all about choices I suppose.
One important point is the almost cutthroat US business competition. Even living in Canada, huge numbers of people cross the border to do some of their shopping. Quite often, even with duty, the price is lower than in Canada. Businesses in the USA seem to be more willing to mark down items, take a smaller margin, etc.
The other point is standard of living and disposable income. Maybe if you live in Norway or Switzerland you just don’t have two big screen TVs and don’t buy a new iPhone every year. Maybe your steaks are 6oz (sorry, 200g) instead of 14oz - you’re not going to starve to death. You won’t have a nice lot with a big yard in the suburbs, and your apartment will be tinier.
OTOH, like someone living in Manhattan, maybe excellent public transportation fits your needs and you can get by just fine with no car - that chops a huge amount off your mandatory expenditures. One thing I observed in some such places too is that people tend to keep and drive a car for a decade or two, instead of trading it in when it’s 5 years old. (Must be all Volvos). If you do have a car, maybe you don’t need to drive 1000 miles a month and it will last 20 years.
Same idea, when I was visiting the UK in 1991 from Canada, my first impression was that everything cost about twice as much and from the want ads I read in the paper, it seemed everyone earned about half what they would in Canada. You just live cheaper and don’t buy as much disposable tripe.
Looking at the OP’s link, it looks like the Consumer Price Index is heavily influenced by the grocery and restaurant indexes and much less by the rent index. If that is so, then changing what you eat, would drastically affect your cost of living. I also noticed that the countries on the top of the list are ones that I don’t associate with large food producers. I know, for instance, that Iceland imports lots of their food.
If you sort on the Consumer Price + Rent index, you find that only 2 countries on that whole list are more expensive than New York City.