Let me start out by saying that I am neither an economist nor a human resources professional. I’m sharing here some information I have learned from mining the depths of Google, trying to stitch it all together into a coherent post. Learning about the comparative realities of living here or in the USA (I’m sticking to just one country for simplicity’s sake) is both fun for the expat (“I knew I wasn’t crazy – that shit is expensive!”) and cautionary for the lovebirds contemplating a move figuring it will all work out somehow (goddess bless them!).
The first thing to understand is that economies are different on many different levels: the price of things, the salaries people can earn, the taxes one pays, the non-cash (and deferred cash) benefits people earn over time, how value depreciates over time, how the banking and credit systems operate, what services are provided by the government, etc. In the case of Brazil and the USA – believe me – they are two different worlds that do not easily equate/translate.
Most travelers think in terms of the currency exchange rate: “Oh Brazil will be an affordable vacation destination; the exchange rate is in our favor, unlike London (for example).” Which may well be true, but moving here to live, work and retire is another matter altogether.
For the new resident, the impulse is to do a quick calculation in your head converting currencies to decide if something is expensive or not. But currency exchange rates give misleading comparisons because they do not reflect salary purchasing power differences.
To try and sort this all out (OK, not all of it, but enough to wrap your head around it) let’s look at three different ideas: cost of living, salary purchasing power parity, and comparative salaries across borders. This is a vastly simplified view, but as I came to discover online, this notion of understanding how one’s life will change financially when moving abroad is insanely complex and has birthed a whole industry of companies willing to sell you “calculators” and personalized reports to help you see into your future.
Cost of living.
To help me understand this topic I relied heavily on the website http://www.xpatulator.com/ where they lay things out in a pretty simple way and offer more detailed analysis for a fee.
Simply put, the cost of living is the cost of maintaining a certain standard of living. When comparing the cost of living between different locations the objective is to calculate the difference in the cost of living expressed as an index, or a broad set of cost points that you can compare in each location.
So in the case of the cost of living comparisons listed at Xpatulator they take 13 different “baskets” of costs – things like groceries, furniture and appliances, education, healthcare, household costs, personal care, recreation and culture, transportation, etc. and compare these aggregate expenses – this index.
Using their index they came up with this ranking of the most expensive cost of living locations in the world.
April 2011 Cost of Living Ranking: Country, City
1. Japan, Tokyo
2. Venezuela, Caracas
3. China, Hong Kong
4. Switzerland, Geneva
5. Switzerland, Zurich
6. Japan, Osaka
7. Brazil, Sao Paulo
8. Japan, Nagoya
9. Liechtenstein, Vaduz
10. Norway, Oslo
11. Brazil, Rio de Janeiro
12. Australia, Sydney
13. Japan, Yokohama
14. Brazil, Brasilia
15. Australia, Canberra
16. Denmark, Copenhagen
17. Russia, Moscow
18. China, Shanghai
19. Angola, Luanda
20. United Kingdom, London
21. Vanuatu, Port Vila
22. Australia, Melbourne
23. Australia, Perth
24. Korea Republic of, Seoul
25. Singapore, Singapore
Salary purchasing power parity.
According to the folks at www.Xpatulator.com the core strategy driving expatriate pay programs globally is the principle of protecting an employees’ domestic income and spending power, irrespective of global location. In the short term, exchange rates, even when averaged over a period of time such as a year, are not a good measure of the comparative value of a salary in relation to its comparative international purchasing power.
In simple terms the salary purchasing power parity is the rate of salary purchasing power that equalizes the purchasing power of different currencies, given the relative cost of the same basket of goods at the exchange rate versus the US Dollar.
This one may or may not surprise you. Brazilians (and expats finding employment in the local market) earn jack shit compared to their US American counterparts. [You have to separate out those US workers who are working here with an international company earning a US wage – more on that later.]
Where was I? Oh yeah – jack shit. For this section I am relying on some dated information, but it was the only good listing of salaries I could find AND that compared the same jobs between the USA and Brazil. Special thanks to Expat American Living in Brazil and a post he posted some time ago.
So the salaries are a bit old (2001 – 2004), which could mean the numbers cited are low-balling it. Actually, given the boom in the economy in Brazil of late (and governmental increases in the minimum salary), chances are the salaries are now a bit higher in Brazil. But given the serious economic realities in the US of late, the salaries listed may not be all too off. In any case, I am trying to compare apples to apples – even if they are slightly old.
Are you sitting? Monthly salaries, on average.
Computer programmer: Brazil – R$4,114 USA – US$3,088 (R$5,095) +24%
Teacher: Brazil – R$745 USA – US$4,055 (R$6,691) +798%
Accountant: Brazil – R$3,671 USA – US$3,370 (R$5,561) +51%
Professional Nurse: Brazil – R$1,766 USA – US$3,168 (R$5,227) +196%
Car Mechanic: Brazil – R$649 USA – US$2,526 (R$4,168) +542%
Bus driver: Brazil – R$762 USA – US$1,594 (R$2,630) +245%
Ouch. So now if you loop around back to the cost of living: rent, the price of a car, a movie ticket, a new computer… the reality is that these prices can be significantly higher here in Brazil (cars are R$40,000 – R$75,000 easy) yet the earning power of workers is significantly lower than those in the USA.
In short: if you move from the USA to Brazil - you are going to take a hit, maybe a BIG hit. Lower wages, higher consumer prices. I’ll repeat what is often said: Brazil is not for beginners.
If you are looking for a reason why Brazilian children live with their parents well into adulthood (perhaps even all their life), look no further than how scarce money is and how expensive everything else is.
The lucky ones are those expats who are working here for their foreign company and are earning a wage that their company has calculated will provide for the same relative spending power as back home and as a result provide for a similar standard of living here. That’s why their salaries appear so great. But even if you ask them, I bet they will report having to live on a budget.