Using an online resource such as Xpatulator will help you easily compare international cost of living differences, salaries and allowances.
In this article we will look at the various ways of measuring and comparing the cost of living, allowances and hardship factors in cities and countries around the world using Xpatulator.
Cost of Living Index (COLI)
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 (e.g. dividing the cost of living in Location A by the cost of living in Location B may result in an index of 140).
The index indicates the difference in the cost of living between the two locations. In this example the index of 140 means that Location A is 40% more expensive than Location B. This would mean that a person who moves from Location B to Location A would need to earn 40% more, to have the same standard of living in Location A as they have currently.
The COLI (pronounced “Coe Lee” not to be confused with E.Coli) report calculates cost of living indexes for all of the host locations you select using the home location you specify.
Using Xpatulator you can choose from any one of the 13 baskets or you can choose the overall cost of living index to make up your report.
Each new COLI report allows you to choose one home location and up to 780 available host locations.
Hardship refers to the relative difference an expatriate and their family are likely to experience and the relative impact on their lifestyle when moving between different locations.
In calculating how much to pay an expat employee, it is important to take into account the relative hardship in terms of the quality of living conditions between locations, and to assess the relative level of difficulty that will be experienced in adapting to a new location.
The ratings for hardship are classified into four main groups and can be described as follows:
- Minimal Hardship (10% Hardship Premium)
- Some Hardship (20% Hardship Premium)
- High degree of Hardship (30% Hardship Premium)
- Extreme Hardship (40% Hardship Premium)
The factors used to establish the level of hardship in each location are:
- Economic Factors: Such as poverty levels and level of service provision
- Political Factors: Such as freedom/tolerance towards different points of view/lifestyle
- Religious Factors: Such as freedom/tolerance towards different religions
- Public Service Factors: Such as provision of water, electricity, sanitation, work permits etc
- Environment/Climate Factors: Such as extreme weather
- Personal Safety Factors: Such as personal safety / level of crime
- Health Factors: Such as prevalence of disease and health standards
- Education Factors: Such as education standards, prevalence of international schools
- Transportation Factors: Such as prevalence of public transport, fuel and road safety.
Cost of Living Allowance (COLA)
The COLA calculator works out how much additional allowance (over and above your current home salary) is needed in another location to compensate for a higher cost of living, increased hardship and the exchange rate. It should be calculated to enable you to have the same relative spending power, and as a result have a similar standard of living, as you have in your current location.
This calculator is recommended for the calculation of a cost of living allowance for short-term assignments.
Article written by: Steven McManus, CEO and founder of Xpatulator.com