I guess that’s the $64,000 question… what is a cost of living? Same as elsewhere, or typical average income for the locals, etc.
Hence, the Big Mac index was more intended to be a currency leveller. The ingredients were the same, the premises were comparable (i.e. downtowns to downtowns, square footage, minimum wage workers, etc.) So it’s a comparison of pretty much the same commercial effort and food supplies in multiple locales.
Riemann didn’t define it, but what he referred to was the Purchasing Power Parity (PPP). PPP is regularly measured between varying economies taking a similar basket of goods and services (food, gas, utilities, haircuts, clothing, etc.) in each locale and then calculating how far away from PPP is a particular currency in relation to another currency. The belief is that absent other influences, a currency will normally revert to its PPP over a 5-7 year period.
The problem is that currencies are so impacted by a myriad of things (elections, trade imbalances, natural disasters, wars, etc.) that it near impossible to accurately predict the movement of currencies over long periods of time.
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There are several problems with that. McDonald’s is not at the same status level in all the countries. In the States, it’s a very inexpensive fast food joint. In Taiwan, people who want to eat cheap and quickly head for a noodle shop which is likely to not be air conditioned. I wouldn’t be the least bit surprised if the cost of the ingredients were different. McDonald’s probably has more choices of bakers for the bread in the West, and can probably drive the price down.
This is the difficulty of trying to compare prices. Looking at what the average worker pays for lunch would be a better comparison, but that data isn’t readily available.
Thailand is simply not the great deal it once was. Prices have risen a lot in the past 10 or 15 years, especially for quality healthcare. But it’s still not a bad deal. Upcountry from Bangkok is way cheaper than Bangkok, but Western comforts are what make living there expensive for some. The more native you go, the cheaper it is, but I’m simply too old now to do that. I demand my Western comforts.
Japan used to be very expensive, but it’s got less so over the years. Just not much inflation. A coke cost 100 in 1981, when I was first there and 130 yen now.
For expats, the major cost is the insane housing. Expats live in huge places in the center of town, but pay enormous rents. One friend was sent over by his US company, and by policy was allowed a house the same size and commuting distance as they would have near their New Jersey head office. The rent was $20,000 – a month!
The company could only afford to keep people over for a couple of years because of taxes. As the rent is considered taxable income, less the foreign housing exclusion, employees have to pay a considerable amount in taxes. The company pays these taxes for them, but this increases their income for the following year, and they face yet increased taxes.
I was a semi local hire. Given a decent salary, but not any reimbursement for housing.
Ah, yes, tax equalization. Where the company calculates “hypothetical taxes” for you, for which you’re responsible, generally based on your home income and normal itemized deductions. While things like location bonus and COLA might be tax-free to such individuals, they’re not necessarily tax free to the IRS, and so the company pays all of these taxes. Of course both the host country and the IRS considers this as part of your income, and the company is on the hook for that.
TY2018 is the first tax year I’ve been able to do my own taxes without the company service, because it takes a few years after you return home to reach an equilibrium.
If I were my company, I’d tend to favor the Aussies more than the Americans, because they don’t have to pay taxes at home. This is particularly an American problem.
On the other hand, I have some very, very nice W-2’s that I consider printing out and framing; I’m talking W-2’s approaching half a million dollars, and in no way reflect anything close to my real income.
I guess we’re actually discussing “standard of living” vs “cost of living”. The former is based on average local - let’s say, a mid-middle class worker. Do they have a big or small house/apartment, do they own a car, do they have air conditioning, what do they eat, etc. The latter is more “how does the same/equivalent thing compare across multiple locations?” What a Big Mac costs in assorted locations compares the CoL. the SoL is what tells you whether McD’s in Bangkok or Tokyo is a fast food, mid-scale dining, a major treat, etc.
There may be a certain savings from how common the food is, i.e. the number of bakers. But much of the food is sufficiently common, and McD’s buys in sufficient volume, that the difficulty finding suppliers issue is less important. Even in Noodleland I assume there are plenty of bakers, bread is not a rarity.
I didn’t eat a Big Mac in Hong Kong, but I did have breakfast at a McDonalds, and it was quite consistent. And the price on the link looked about right also. But I’m not sure I’d call it a cost of living indicator, since food in Hong Kong was very reasonable though housing was very expensive. Even to someone from the Bay Area.
I didn’t read through the whole thread.
The Economist came out with the Big Mac Index as an informal way to see which currencies were under/over valued.
They also show statistics for various countries such as currency value now and last year, stock market, trade balance, etc.
The statistic you want might be purchasing power parity. Likely someone has already mentioned all of this.