Prices & Earnings

What would you prefer?
A high salary and expensive goods – or a low salary with cheap prices?

• If your answer is ‘a high salary with cheap prices’ I would advise you to visit your travel-agency and buy a ticket to fantasy-land.

The purpose of this chapter is to find out, what’s better for people with an average salary – high/expensive or low/cheap.

We start with the prices.

The 10 most expensive cities in the world in 2015 are:

1. Oslo, Norway
Oslo is 20% more expensive than the rest of Western Europe and 68% pricier than the global average.

2. Zurich, Switzerland
An average cost of 1’300 USD for a weekend-stay makes Zurich the most expensive place for visitors.

3. Tokyo, Japan
Tokyo is 50% more expensive than most other Asian cities.

4. Geneva, Switzerland
Geneva has the highest food costs in Europe with 715 USD per month.

5. Copenhagen, Denmark

6. New York City, USA
NYC is the most expensive to rent a 3-room apartment with monthly costs of 4’300 USD on average.

7. Luxembourg

8. Stockholm, Sweden

9. Caracas, Venezuela
Appliances and electronics are most expensive, due to overall price inflation. A basket of representative items costs 8’460 USD compared with 3’960 USD in New York City.

10. London, U.K.
London drivers pay the most to fill their fuel tanks.

On the bottom of this list, the Ukraine capital Kiev, Sofia and Bucharest are among the cheapest cities in Europe.

Now that we know the cost, we move to the income. To find out, if the average income is rebalancing the costs of living between expensive and cheap cities, we can use a simple method and ask:

• How long does a person with an average salary have to work to buy the same product in his city?

A product that suits this purpose is the Big Mac. Why the Big Mac?

1. The Big Mac has to be offered in the exact same way and size around the world
2. The ingredients are 100% out of domestic production. The costs are local only
3. Salaries are paid on local level too

As I told you in a previous chapter, I commute regularly between Bucharest and Zurich. So I can give you first hand the price of a Big Mac there – it’s 7.50 USD. Here in Bucharest I paid a little over 2 USD last time I visited McDonald’s in Unirii.
Here it’s over 3 times cheaper – there the average salaries are higher – what’s better is shown in the following list that answers the question:

How long do people have to work to bite into a Big Mac?

9 minutes in Hong Kong
10 minutes in Tokyo
11 minutes in Zurich and New York
12 minutes in Vienna and London
15 minutes in Paris
18 minutes in Rome
19 minutes in Oslo
20 minutes in Moscow
25 minutes in Warsaw
30 minutes in Prague
32 minutes in Rio de Janeiro
34 minutes in Istanbul
40 minutes in Sofia
42 minutes in Beijing
44 minutes in Bucharest

Ok, people in Bucharest have to work longer than others in Europe to buy the same stuff.

But first, there are cities like Kiev (55 minutes), Jakarta (67 minutes) or Mexico City (78 minutes) where the cost/income ratio for a Big Mac is much worse than in Bucharest.

Second, the difference between Bucharest to other european cities is in my view not that big to make it impossible to close this gap in the near future.

But much bigger differences come to light, when we compare the cost/income ratio of another universal product – but this time it’s imported: the Iphone6 (16GB)

Check out the following list. To buy this phone with an average Bucharest salary, you have to work more than 219 hours, while the average guy in Zurich gets his phone after less than 21 hours on the job. That’s a factor 10 for the Iphone 6 – in the case of the Big Mac, the difference was only a factor 4.

All data in this chapter was provided by UBS and taken from the survey ‘Prices & Earnings 2015’.
To find out much more about salaries and prices around the world, check out the full report here.

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We stay on the subject of prices and examine the composition of the oil price and the costs for car drivers at the gas stations around the world – in the next chapter: http://www.theleader.ro/same-oil-different-price/