Monday, April 4, 2011

Expatriate Salary Purchasing Power Parity

 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 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
New York City in the US of A is listed as #43.  You can see it is no longer all about the US front and center.  The WORLD (including Brazil) has become an expensive place to live!

Salary purchasing power parity.
According to the folks at 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. 

But I would add there are still differences in the QUALITY of the goods and services bought.  For example, a home washer and dryer in the Sates might finish a load of jeans from start to finish in less than 2 hours.  In Brazil is could take upwards of 5 hours. Or hiring a plumber to reroute your water lines to remodel your kitchen may take half a day in the states and four days here, depending on who your local plumber guy is, and given the concrete nature of building construction here.
Comparative Salaries.
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.
I’ve taken just 6 typical jobs across the spectrum for comparison.  Go here if you want to knock yourself out with additional comparisons.  I’m offering the somewhat current currency conversion rate of US$1 : R$1.65 and expressing the US American salary in both dollars and reais for ease and because we are looking from the living-in-Brazil perspective.
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.

The moral of the story for Luiz and I is to live simply and to be as local as possible.  We do miss the extra income that allowed us to be globe trotters for many years.  But we work so much less now and enjoy so much more quality time together.  We did not move to Brazil to get rich, or even to live large.  We moved to re-prioritize our lives.  And that we have done.

My advice?  Save a boat load of bucks before you make your move.  You will need it to help smooth the transition.
OK – so that’s my best swing at it. What do you think?  What did I get wrong?  What would you add?


Anonymous said...

I am an economist and I' ve lived in the USA, Europe and Brazil and I agree with you.

In Europe u pay a lot of tax and u see the pay off: great schools , fantastic public health system, good public transportation , etc.

In BR u pay a lot of tax but u don't the see the results...u still to pay for private health insurance , private schools, etc.

But there's still something about brazil that is wonderful....maybe is the people , weather , food or all of them combined :)

Danielle said...

Thanks for doing all that research, Jim! It's always nice to see things clearly laid out like that.

I think an important difference between the economies of the two countries is the existence of a huge informal sector in Brazil, which I learned about on CNN and which is also called the unorganized sector ( It's basically people who have their own little unofficial side business and who don't pay taxes.

It's a really common lifestyle in working class and sometimes in middle class Brazil, that is bound to affect the economy somehow, right? I'm not an economist, but I would guess that it drives prices and therefore salaries down in the formal job sector because there's always someone willing to do the same job at a cheaper rate for the client. This someone usually has less formal training, but there's always another someone (the client) who will accept this lack of formal training because of a cheaper price and a recommendation from a friend.

Once Brazilian education improves, the bar will be raised, and people's priorities will change.

Anita said...

Great post and great comment from the first anonymous.
In Holland I pay A LOT of taxes. Good ! My kids (and all kids in this country) get excellent free education, medical system is quite good (you may be put on a wait list though, depending on your case), the streets are super clean, public transport is incredibly efficient and punctual. But because this is a wet and gray country most of the time, people are desperate for vacations and end up spending much time on travelling to abroad. Salaries and wages are very high, so normally you don't pay people to do all the work at your home: cooking, cleaning, gardening, restoration, fixing, ironing, washing your car, etc. DIY... It is very tough and it never ends.
"Every advantage has its disadvantage" (Cruijff)

Gil and Ray said...


This is a great post! Good job.
I would add, that a few things, for example, cars are much more expensive in Brazil ( and crappy in my opinion ) but cars in Brazil are an investment and hardly looses any value. It's not like in the US that you buy a car for 20K and as soon as you drive off the lot the car is worth 15K. In Brazil you buy a car for 40K and sell it in 2 years for 38K, so families look at automobiles as a safe, consistent investment over the years.
I think it is very hard to try to talk about cost of living in Brazil because the price disparities are huge.
You could safely define cost of living in Sao Paulo and Rio for example and be accurate, but if you live in Manaus or Salvador it's a completely different reality, both for salaries and cost of living.
I can tell you for example that a teacher, a mechanic and a bus driver make much higher salaries in Sao Paulo and Rio than the numbers found on the research. I know teachers who's starting salaries are at least twice or three times the amount listed of 748 Reais for public schools in Sao Paulo and much higher for Private Schools. I am sure the average gathers salaries of teachers all over Brazil, everywhere from the Amazon to the beaches of small towns in Bahia.
I am always SHOCKED with prices at Restaurants in Sao Paulo, it is an absurd. Good Restaurants in Sao Paulo can be and often are higher than good restaurants in New York or Boston.
In my opinion, most prices are really out of wack in Brazil principally because Brazilian prices have traditionally followed American prices, so, around 2002 when the Brazilian Real was worth 4 times less than the US dollar, you could exchange U$1,00 for about U$4,00, the cost of things in Brazil were relatively low for Americans, but accurate, comparing the usual parity of US products.
Then the Brazilian government, for political reasons, kept the Brazilian real SUPER valued at an unreal rate of what it is now U$1,00 to R$1,65 and you now have the mess you presented on your research.
I have to say that salaries for high executives in Brazil are WAY HIGHER than the American counter parts.
A salary for a Director in Brazil is between 15K and 40K PER MONTH, depending on the size of the company, that is about 110K to 300K dollars PER YEAR, that is somewhat higher than salaries for Directors in the US that vary between 80K and about 140K depending on the company and location in the US.
Long story short, the low and middle classes are usually screwed, both in Brazil and in the US, the rich and powerful know very well how to take care of their own.
The trick here is to find a happy medium, where you won't be the teacher making 740 Reais a month but rather find a good teaching job at a private school in Brazil making between 2000K and 4000K per month.
Another thing I learned. I am bringing my FRIGGING DRYER and MY SUPER QUIET GE PROFILE DISHWASHER.
I did learn that an equivalent Brazilian DRYER, not the crappy Brastemp one that takes 5 hours to dry a couple of Jeans but the one that takes 50 minutes, costs in Brazil about 4900K Reais.
So, if one can, it is a good thing to rent a container and stuff as many of your things as you can and bring them with you to Brazil.
I couldn't agree more, Brazil is not for beginners, and I have to confess that after 12 yeas away, at times I do fell like a beginner :(
You and Luis have certainly found your happy medium.
Thanks for sharing Jim.


Meredith said...

Interesting and informative post, Jim.

However, I have to point out that although your research may have found that the average teacher earns more than $4k/month, that's really not a reality in Florida (and I doubt in most other states as well). Also, I know I haven't lived in Brazil since 2005, but I earned more than R$745/month (though not much more), working only a 20-something hour work week, so that's not comparable to my job in the U.S. which is closer to 40 hours a week. Plus, I worked at Fisk and here I'm a public school teacher. English language teachers earn much less than public school teachers and IMO, that's comparing apples to oranges.

But I do appreciate everything else that you pointed out. And it makes me feel even more grateful that I will earn a higher salary in BR than I do in the U.S.

Jim said...

Thanks all - it was quite a project putting that together.

Ray - as for teachers' salaries, I'm sad to report that Luiz recently had a conversation with a public school teacher in Rio and she said she has to work in more than one school to make a living.

Teachers get certified in a subject area (like math or geography) and are paid a bit more than R$700 to teach this subject. If you want to earn more you must be certified in another area and find another opportunity to teach that. His friend works in two schools teaching three subject areas.

Poor teachers!! Não é facil!

Pack that container!!

Jim said...

Meredith - thanks for the additional information -- this is definitely a mercurial subject, especially when it comes to salaries across vast countries.

I am certainly not trying to be definitive - just shining a light on how tough it can be to "simply translate" your life from one place to another.

Anonymous said...

i think "lower" jobs in brazil pays much less than usa/europe but for top jobs u get more like Ray said :



Corinne said...


Another thing that is affecting your salary comparisons is the change in the minimum salary since 2001. Currently the minium salary in Brazil is R$545 and in April of 2001 it was only R$180 a month. That will effect the bottomline of a lot of the jobs that you mentioned. However, skilled labor (construction, pumbing, mechanics) is paid a lot less than in the US, so those jobs show a lot of disparity. In my case, my salary is pretty similar to what it would be in the US. An associate professor makes between 70,000 and 130,000 a year at a top public research university. I made similar to that last year as an associate professor at a federal university. One way of comparing salaries that I like islooking at what % of your salary do you spend on certain goods. I spend more in gas and food, but less in personal care and cleaning services here in Brazil.

And of course, quality of life is the big factor. Although at times the convenience of getting things done stateside outweighs some of the simple living in Brazil, in general you have less pressure and less stress. Plus, I can honestly say I have better students in Brazil.

Anonymous said...

Reason we bought used appliances and had them shipped in a container. Just walking through town earlier this evening, saw a small refrigerator, would keep in a garage, for $R999. That is offensively expensive. Very informative posting.

Gil and Ray said...

To my point, the top executive salaries are high in Brazil right now but if and when the US dollar Real Exchange rate is balanced to the reality of it should be, the Top Executive salaries will go back to their normal historical levels.

Jim said...

Yes, definitely the top jobs in São Paulo are paying top salaries. This survey/article was also posted over at Expat American Living in Brazil.

But the top of the pyramid is a tiny fraction of the workforce, and I hope to jesus that Brazilians do not buy into the myth that US American have swallowed hook, line and sinker - that somehow these jobs are open to everyone, if you just work hard.

The so-called American Dream is a myth. People are starting to see that now. So I am cautious about looking at top salaries or "average" overall salaries, as most of this reality is a pipe dream for 90% of Brazilians (and US Americans).

And rememeber that I mentioned that the salary chart was dated. But it was all I could find that allowed me to directly compar USA and Brazil jobs.

Good discussion.

Jana @ Paper plains said...

Great post Jim, I was eagerly waiting for this one! I am not sure about many other brazilian companies but my husband works for a quite large one and he generalizes it as very flat. There are a few people at the top that just make obscene salaries (easily compared to wall st execs) and then there are thousands below that are having a tough time but work at such a good company they hesitate to leave. But, they want to put their kids in private school, have a maid, buy a nice tv car, travel... and after working there for 5 years with a bit of seniority they cannot afford that. These folks went to good schools, have mba's and claim its hard to have 2-3 children in SP with such high expenses.

Then there is me, and I am probably contributing to the problem by working, "under the table." I am excited just to have a job but lets just say I would be paid much better as a pizza hut delivery guy in the US. And I have a masters.

But.. on the flipside we are both doing something we love. We are home at 630 together most nights (before in the US both of us were home around 830-9 and saw each other on a wave to bed). Our quality of life in that respect is much better. We could both be paid significantly higher in the US and have lots of money to spend on travel, nice restaurants and things... but at the moment we are really happy with our current things, cooking at home and spending time together. I think that is brazil for us! Maybe it will change over the years so we can participate in a few more things and travel more but for now this is one of the reasons we moved here! There is just something about Brazil....

Tasha said...

Great one. I think what is important is the % differences, not the actual numbers which by your own admission are a little dated.

We often marvel at how the average person here can afford anything..even things like toys for the kids, which are so expensive. We feel like we can't! So, ironically, we justify the ENORMOUS air fare back home once a year to fill up with cheaper goods.

The Reader said...

Seems fairly accurate to me, and yes, I'll chime in as one of the lucky who are here on an international assignment and paid a US salary (in BR currency though). Yes, even we, even with the perks we get, still have to live on a budget.

We do get to travel, because we redeem air mile points that my husband gets from all the business travel he does. And we stay in the lowest cost pousadas we can find (that are still safe).

We have yet to utilize the schools here because we cannot afford, even with all our perks, to send 3 kids to private school. So we continue to school at home, despite the isolation that follows.

We have yet to join any of the athletic/community clubes, for the same reason. Too pricey for our family.

We aren't poor, we don't live paycheck to paycheck, but we do watch what we spend and make careful choices. Yes, even on an ex-pat, international salary.

And we still save up to do our big shopping in the US once/year, because prices here are just absurd.

Fiona said...

Really nice post. I know this post is about expats, but the general population comes to mind as well. Adding the need for people to pay for private university (if their parents couldn't afford to get them into the private high schools, thus giving them a shot at free public unis), and it's a lot of extra work for a lot less in the pocket.

Jim said...

Reader - thanks for adding your experience. Brazil is expensive - even for those who have been promised salary parity.

Fiona - I have a student who is an archetect graduate from a private school and her first job paid R$8/hour off the books. They refused to sign her work book. She is HUNGRY for a REAL job with benefits. But it is not easy to find.

nelsinho said...

Excellent review Jim!
Another important fact to consider when explaining Brazil, and why is expensive when compared to the US, is the social reality. The gap is huge, specially in big cities like São Paulo and Rio de Janeiro: rich people are extremely wealthy; a significant part of the population is very very poor; and middle class, although on the rise, is in fact a struggling one, and not comparable to middle class in the US or in Europe.
And the rich and the poor live side by side. Only by making things extremely expensive you can ensure the poor side doesn't enters in the space of the "elite". That's why you have so expensive private schools, private hospitals, rents, supermarkets, restaurants, hotels, stores.
In Rio de Janeiro the exact same basket of goods can cost three times more depending on if your buying in the local store close to the "favela" do Vidigal or at the supermarket in Leblon neighborhood, just 1km down the street.
The good part is that you have a choice. For instance, you can go to a good fancy restaurant and pay a lot, or you can also eat very well in a cheap unsophisticated "boteco".
Is just a question of getting into the local spirit!

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