What is cost of living? - costoflivingcomparisonsworldwide

Cost of Living
Maura Pegg
Kristen Smith
What is cost of living?
The cost of living in an area is the cost of
maintaining a certain standard of living in that
location. Changes in the cost of living over time are
often shown in Cost of Living Indexes. The cost-ofliving index, or general index, shows the differences
in living costs between cities.
How is it calculated?
Starting by giving equal weight to each of the cost of living
variables, including the livability of a location, an average of
all the prices of each factor across all the cities is found,
and these average values for each factor are used as the
basis for the index comparison.
In the Mercer Cost of Living survey, which we use as our
example, New York City is used as the basis for the index
The Economist Intelligence Unit formula, which is used for
calculating cost of living, ensures that whether an associate
is transferring from City A to City B or from B to A, the
numbers are consistent and the formula still applies.
Why Use Cost of Living?
• To calculate a Cost of Living Allowance
– A COLA helps employers determine pay when
sending employees abroad
– IMPORTANT because corporate assignments
have become truly global
What Sort of Factors Must Be
Considered in C.O.L. Calculations?
• Ranked on comparative costs of expatriate goods: housing,
transportation, food, clothing, household goods, etc.
• The fluctuation of world currencies strongly impacts the
index year to year
• Housing biggest factor in determining COL
• RENTING a house in some areas is up to $30,000 monthly–
this is due to the limited availability of housing that meets
international standards -- crime problems/modern services
• The fundamental flaw of all cost surveys is that they
convert local prices into US dollars, which means that any
changes are as much a result of currency fluctuation as of
price inflation.
Major Rankings in 2010 Mercer Report
#1 - Luanda, Angola (Africa)
#2 – Tokyo, Japan (Asia)
#3 - Ndjamena, Chad (Africa)
#4 - Moscow, Russia (Eurasia)
London --- #17 (#4 last year)
NYC - # 27 (used as base city with index of 100)
– NYC = Highest ranked US city
– Same 2 bedroom apt: NYC = $4000, LA = $2500 --- rents
are far more expensive in NYC than any other U.S. city
• #279 - Indianapolis, IN (lowest US city on report)
2010 Mercer Index Summary Points
• Top 20 Cities nearly ALL African and Asian cities
– U.S. $ has weakened against the majority currencies
• Cost of living in Africa is high (due to limited
availability of imported goods that expatriates
will purchase)
• Asian cities high on report– strengthening of
many Asian currencies against U.S. (worth more
when compared to the dollar)
Comparison of Two High Ranking
Cities in Mercer Report
Used Asia’s #1 City Tokyo (#2) and
U.S.’s highest Ranking City, NYC (#27)
Combo Meal at McDonald’s
Milk (regular, 1 liter)
1 bedroom Apt (in city)
$1,190.84 (monthly)
$2,323.29 (monthly)
Disposable Salary
In Contrast, Lower Ranking Cities
Used Buenos Aires, Argentina (# 269)
and Indianapolis, IN (#279)
Buenos Aires:
Combo Meal at
Milk (regular,
1 liter)
1 bedroom Apt
(in city)
$512.72 (monthly)
$450.00 (monthly)
Disposable Salary
Other C.O.L. Indexes
Cost of Living

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