Many data providers exist to enlighten us on the cost of living globally. Nonetheless, different approaches depict different rankings of the most and least expensive countries, making it difficult to gather a general conclusion. Producing less obfuscated insights, we turn to two data providers: the Big Mac Index and the WageIndicator Living Wages.
The Big Mac Index captures purchasing power parities worldwide. It is used to understand which currencies are under- or overvalued. The difference between currencies depict the cost of living in any given country. Using the national dollar price of McDonald’s Big Mac, one discovers where the cost of living is high or low. Yet, the Big Mac Index suffers some limitations. For instance, McDonald's is a relatively expensive option compared to local alternatives.
WageIndicator is another provider of data on the cost of living—albeit, this data contains a larger basket of goods. Taking food, clothing, and other basic expenses into account, WageIndicator calculates the appropriate living wage per country. That is, the wage required for a decent living. Arguably, WageIndicator takes a more holistic approach compared to the Big Mac Index, going beyond the mere price of a burger.
The Ranking
Comparison is key to remove the one-sidedness of single data providers. To compare the cost of living using the Big Mac Index and WageIndicator Living Wages, we explore the country's rankings—ranging from a high to a low cost of living. While WageIndicator provides living wages for various family types, we only focus on the measure for a typical family here. That is, two adults and an amount of children that depends on the national fertility rate.
Given that the Big Mac Index contains prices for 54 countries, the WageIndicator sample is reduced according to their overlap in coverage (originally including 102 countries) to enhance the feasibility of comparison. The combined sample includes 49 countries.
Based on both data providers, the cost of living is particularly high in three countries: Norway, Switzerland, and Sweden. On the contrary, the cost of living is particularly low in three countries: Turkey, Ukraine and Azerbaijan.
