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I see different (more or less abstract resp. specific) approaches to compare wealth (of individuals, regions, and countries):

  • by living standards
  • by living expenses
  • by incomes/salaries
  • by purchasing powers
  • by price levels

One such approach – to talk at large – could be:

How long can I – coming from country X – live in country Y by spending my last monthly salary converted by nominal exchange rate:

  1. as a backpacker or as a convenience tourist?
  2. adapting to the other country's standards which may be lower?
  3. adapting to higher standards than I am used to?

How much does this period deviate from a month?

My question is: Where do I find this approach taken?

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  • $\begingroup$ Or what is your question? $\endgroup$ – Art Oct 25 at 3:51
  • $\begingroup$ @Giskard & Art: You are right, I forgot to ask a specific question. I added it. $\endgroup$ – Hans-Peter Stricker Oct 25 at 6:08
  • $\begingroup$ You didn't mention health insurance. A visitor can simply return to Germany if a health problem develops or that person can buy travelers' health insurance. If the German wants permanent residence status you might want to consider the cost of health care. $\endgroup$ – H2ONaCl Oct 26 at 1:14
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This is tricky to answer precisely because governments vary a lot in the services they extent to visitors. There is also variation in the mix of consumption goods across countries as well as their relative prices. You might respond to local conditions by changing your consumption bundle more or less than the average person and that would change the economics for you relative to an average calculation.

The simplest approximation is to take GDP (or the C component of consumption), measured using exchange rates rather than PPP, and divide it by the population.

Think about it this way. Nominal GDP per capita in the US is about \$62,606 and in Germany is \$48,264. Assume it is safe to either ignore taxes or taxes are comparable in the two countries. If you have have saved the salary of the average German then you can afford the spending of the average American for about 9 months.

Another way to do this is to look at destination country household final consumption expenditure per capita. As of 2016 this was about \$36,373 in 2010 dollars, probably about \$43k in 2019 dollars. According to Wikipedia, average German salary, net of taxes, is about \$32,000. So if you have a pension that pays net of taxes the salary of a typical German (also net of taxes), you can afford about 75 percent of an average American's spending.

A third way is to use expatriate cost of living indices, although I've been told that these are more accurate for affluent urban households. For example, expatistan says that the cost of living is 53 percent higher in NYC than in Frankfurt. This suggests you can live for eight months in NYC for the same income that buys a year's worth of consumption in Germany.

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How long can I – coming from country X – live in country Y by spending my last monthly salary converted by nominal exchange rate:

1 as a backpacker or as a convenience tourist? 2 adapting to the other country's standards which may be lower? 3 adapting to higher standards than I am used to? 4 How much does this period deviate from a month?

My question is: Where do I find this approach taken?

There is a problem with this question, the size of the country. This is a more straightforward question if Country X is Luxembourg, and Country Y is Bolivia.

For a larger country, like the United States, the internal variability is extraordinary. To provide an example, the price of a home I used to own was one-fifth of the price of what it would cost me in another part of the United States.

A person backpacking in New York faces radically different costs than one backpacking the Appalachian Trail, the Big Island in Hawaii, or crossing Alaska. Of course, in Alaska, you would need things such as bear spray and a high powered weapon so as to minimize the risk of being eaten. There are really good brands of bear spray, so you should ask a local rather than buy it before you got to the United States. You cannot fix being eaten.

The United States, like the European Union, could be thought of as a custom's union combined with a monetary union. Gross aggregates do not reflect internal costs.

Two states, side-by-side, could be like day and night in terms of living standards and costs. Also, they can create a range of comparison problems.

For example, if you decided to drive from the District of Columbia to Bangor Maine, you would cross around ten states and be near tens of millions of people. The same driving distance would get you diagonally across the State of Montana. Although there are a few more people in Montana and the District, Montana is about the size of the American Northeast, and DC is about 69 square miles (177 sq km). Montana is about the same size as the island of Great Britain at approximately 147,000 square miles(381000 sq km).

Montana has stretches that go for hundreds of miles without gas stations or other stores of any kind. DC goes for blocks without gas stations.

In some parts of the United States, such as West Virginia, you could live on half your German salary and save the rest. In some parts of California, you will be homeless.

One of the problems with "representative agent" models, which is at least in part what any discussion of inflation, PPP or similar topics really imply or require, is that they reduce everything down to one number.

Your problem is closer to a personal finance question. For it to be answered, greater specification of the events likely to happen must occur.

The representative American doesn't exist in this sense. The American with the representative gross income is likely not paying the representative tax rate and is not the person paying representative housing prices, gasoline or health care costs. The median wage isn't paying the median tax, the median insurance premium, or the median cost of food. They are all different people.

I did a search for three-bedroom, two-bath homes in different parts of the United States. One sells for \$109,000 with 1.25 acres of land in Arthurdale WV. The other sells for \$918,000 with 7000 square feet of land. I also looked at a few other cities, villages, reservations and towns but these two seemed to capture the variability.

You will find your approach taken, approximately, in personal finance textbooks, minus the exchange rates. They ask these specific questions. The conversion to be taken place would be in nominal currency.

Traveling from a small country to a small country allows representative agent questions to be meaningful. When traveling from a large country to a large country, it is better to compare states or counties(parishes) to states or counties(parishes).

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I think the World Bank's table Price level ratio of PPP conversion factor (GDP) to market exchange rate gives an answer. The numbers given here indicate somehow how much of a month an average inhabitant of this country could afford to live an average life in the United States (by an average monthly income in his own country), right?

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For the "poorest" country (Sudan) we find a value of 0.2 (which means 6 days which is maybe more than one would expect), for the "richest" country (Bermuda) we find a value of 1.6 (which means one month plus 18 extra days for free).

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    $\begingroup$ Isn't PPP exactly wrong here? Imagine there are two goods, haircuts and bread. Bread is tradable with foreigners and has a global price, while haircuts are not and have a local price. In poor countries, wages are low, but this makes haircuts relatively cheap, which means that GDP measured at exchange rates understates consumption. However, if you earn money in a rich country and consume it in a poor one, you consume the exchange rate bundle, not the PPP one. So your money would probably last a 100 times longer in South Sudan, not 5 times longer. $\endgroup$ – BKay Oct 25 at 15:38
  • $\begingroup$ @BKay: But how is this measured? By which measure? The World Bank gives me a number of 5, but effectively it's a number of 100? Who and how gives me this number 100? On which calculatory basis? $\endgroup$ – Hans-Peter Stricker Oct 25 at 15:49
  • $\begingroup$ @BKay: One aspect of the problem are e.g. German retirees abroad: They get their monthly income as pensions (according to German standards) and spend them with a number/factor of 5 (or 100) somewhere else, e.g. in India, thus gaining but not giving back. How does the PPP$ concept help here, resp. what would a better concept be that outlaws this kind of behaviour? Or do we just have to live with it? $\endgroup$ – Hans-Peter Stricker Oct 25 at 16:13
  • $\begingroup$ @BKay: "Isn't PPP exactly wrong here?" This gave me a lot of thinking. Why? (I initially believed it was exactly right here.) I estimated that you put is as a question, not an assertion. $\endgroup$ – Hans-Peter Stricker Oct 25 at 16:22
  • $\begingroup$ @BKay: Where does your (fictious?) number of 100 come from? Can it be substantiated? $\endgroup$ – Hans-Peter Stricker Oct 25 at 16:26

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