By Arnold Kling
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.?