Let EUR 1 = USD 1.17. Also, let INR 1 = USD 0.015 (these are the actual figures reported by Google on 10/2/2017)
Before we can make any meaningful comparison, we need to express the values of the dozen of eggs in a common currency. For simplicity we choose as that common currency the USD.
- A dozen of eggs in Frankfurt cost USD 4.142
- A dozen of eggs in Delhi cost USD 0.99
How did we get the USD equivalent prices?
It's straightforward: we multiplied the price of the commodity (dozen of eggs) denominated in some currency (EUR or INR) with the price of that currency denominated in USD.
Therefore, the price of a dozen of eggs is lower in Delhi than it is in Frankfurt, when the common currency in which the prices are quoted is the USD.
Let's turn now to the compensation figures:
- wages of INR 10,000 are equal to USD 152.58
- wages of EUR 1,000 are equal to USD 1,170
A employee in Germany can afford to buy 282 dozens of eggs while an employee in Delhi can afford to buy 154 dozens of eggs (divide the wage figure in USD by the price of the eggs again denominated in USD).
Therefore, if we are quoting wealth in terms of dozens of eggs that can be bought, then the employee in Germany is 1.8 times wealthier than the corresponding employee living in Delhi.
What are the contributing factors to this unequal distribution of wealth (measured in dozens of eggs-potentially-bought)?
There are three factors in play, namely
- the price of the commodities quoted in domestic currency (ie the
price level in eg Germay or India)
the price of the currencies quoted in USD (the common currency we
used as a common measure)
the level of the compensation quoted in domestic currency that each employee can command, in different countries