Arnold Kling

Cost-of-Living Arbitrage

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Intellectual Property... Regulation and Industry Struct...

An engineer from India emails me,


The purchasing power parity in India is 5 compared to USA - a 20000 $ programmer in India is actually making 100,000 $ in terms of
his spending power.

...an average programmer in India lives the same life-style as an average US programmer now - in many ways better - in some ways worse - in a new high-rise modern apartment, with swimming pool, jaccuzi, sauna, steam, 3-bed 2-bath, 2400 sq. ft apartment, gated community, modern bowling, tennis etc and other facilities - ...for 300 $ a month - something that will cost atleast 1500 $ a month in a cheap American city such as Dallas or Austin...labor that is supporting this programmer - house maid, builders, cooks, apartment management, etc is done by people who have incomes up to 10 to 30 times lower than this programmer's - he is able to buy these other services for a much lower price while he is able to get a high salary...


Measuring the cost of living across countries is hazardous, because the consumption baskets tend to be so different. I do not believe that there is a simple, precise estimate of the ratio of the cost of living in one country to the cost of living in another.

If my Indian correspondent is correct that the cost of living there is one-fifth that of the United States, then there is a form of cost-of-living arbitrage available. That is, an American computer programmer could move to India and multiply his salary by five (assuming he could continue to work at the American wage rate).

While this cost-of-living arbitrage might be awkward for people born here, this country has many Indian expatriates for whom moving back to India presumably would not be difficult. It seems to me that if they can work effectively from India (as the outsourcing phenomenon indicates), then they should be streaming back home. The fact that they are not doing so suggests to me that they do not perceive that the cost of living here is really five times the cost of living in India.

For Discussion. What information can one find about the relative cost of living in India vs. the U.S.?



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COMMENTS (6 to date)
Adrian E. Tschoegl writes:

Union Bank of Switzerland has an excellent, unfortunately only tri-ennial, survey of wages and living costs around the world.

Union Bank of Switzerland (UBS) 2003. Prices and Earnings: A Comparison of purchasing power around the globe.

Charlie Sierra writes:

The fact that they (ie.) are not doing so suggests to me that they do not perceive that the cost of living here is really five times the cost of living in India.
------
Huh???

Hello, earth to Arnold?

They are moving back, along with many western nationals, and in RECORD numbers.

see: http://www.financialexpress.com/fe_full_story.php?content_id=51586
For this excerpt:

India Shines For Job Seeking Foreigners, too

India is becoming a major hub for not only outsourcing, but also for foreigners in search of employment—and even at Indian salaries

RAJKUMAR LEISHEMBA, SAIKAT NEOGI & SULEKHA NAIR
Ethel Graff, 29, born in Brussels and holding both Belgian and German nationalities, joined the India office of ebookers in May 2003. ebookers is Europe’s leading online travel agency. Today she works as the project manager for France, Netherlands, Germany and Switzerland with Tecnovate eSolutions Pvt Ltd, which is a subsidiary of ebookers, at Okhla Industrial Estate, New Delhi.

...

Adam writes:

Charlie is right... a large number of Indian nationals who came to the US under H1B visas started going back after the tech bubble burst, oftentimes to start their own companies with the seed money they saved up while working here. In fact, when I visited the campus of one of the big dogs of Indian IT, I was surprised to see a decent number of caucasians working there, and not only in management -- a number as regular old programmers.

As for 5:1 being a good ratio for comparing costs between the US and India, that holds pretty well. I traveled in India for quite a while, and found that the rule held in general. For labor-intensive goods/services, the costs were lower than that average, and for capital-intensive goods/services it was higher. But it's a pretty decent average.

The person who emailed you was right... while life may be pretty hard in the US on $20k/yr, that goes really, really far in India. If i was a programmer I'd definitely give some serious consideration to a job in India, even at $20k/yr, particularly if I was an unemployed/underemployed programmer.

Scott Wood writes:

I can only add personal experience as someone who works with a large number of Indian ex-pats. Every one (I mean that literally, and, of course, I'm only talking about the subset of people with whom I've worked) intends to move back to India after 5 or so years in the States. The US experience will give them a leg up on the domestic competition, and they can save a lot more money from their US salaries. And they all reiterate that prices are WAY lower in India.

FWIW, I also work with a group of Filipinos. None of them intend to move back to the Phillipines, even though prices are also much lower there. I haven't tried to find out why.

Charles Hart writes:

I want to know the cost of a condo in the Phillipines (Manilla) plus the cost of living. Would ownership of a Manilla condo plus $440 a month from Social Security be enough to live on? My email is chart99@juno.com and name is Charles Hart

john writes:

im doing a research project on India and I'm having the hardest time finding the wage rates, cultural norms and values , and living standards. if someone could help me out that would be awesome. thank you very much

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