ECA carries out surveys of living costs around the world to help organisations calculate appropriate salary packages when their employees go on an international assignment. Survey results are published in the form of cost of living indices, which compare the living costs in the assignee’s home location with those in the host. An index of 160, for example, would mean that the host location is 60% more expensive than the home (which is always 100). When applied to salaries effectively, cost of living indices enable assignees to maintain their usual level of buying power while living in a cheaper or more expensive location.
The infographic above shows the stages of how a cost of living index is calculated by ECA. Unfortunately, we do not really have such a contraption doing all the calculations! We rely instead on a team of experienced analysts and researchers to work with our dedicated software to ensure the whole process runs smoothly to calculate the hundreds of thousands of indices used by our clients each year.
In order to calculate cost of living indices, prices are collected for a basket of more than 170 everyday goods and services in the 500+ locations that ECA surveys. Average prices in the home location are then compared to prices of the same items in the host. Each item in the index is given a weight that reflects its relative importance in the home consumption pattern e.g. food items are given a higher weighting than leisure items, because households generally spend a larger proportion of their income on the former than the latter. This ensures that the price differential for individual items influences the index to an appropriate extent.
This process is repeated at least twice a year by our experienced team of analysts for all ECA cost of living locations to ensure the information published by ECA is always up to date.
For more information about how ECA's indices are calculated and applied to protect the buying power of people moving between countries as well as looking at what causes them to change over time please download our free white paper.
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ECA publishes Cost of Living data for more than 500 cities around the world. It is available from ECA in several forms: as part of a subscription in a calculator which allows you to experiment with different types of index and review the outputs; in reports, providing background detail for specific indices; and as part of the Build-up Calculator for performing balance-sheet remuneration calculations. Cost of living data is also pre-populated in ECAEnterprise, our Assignment Management System, in ECA’s Cost estimate calculator and in our Net-to-Net Calculator.
Please get in touch to find out more about ECA’s cost of living data or to request a demo of the tools available.