|Brazil: Expatriate Salary Purchasing Power Parity |
| By Jim Shattuck|
April 15, 2011
Let me start out by saying that I am neither an economist nor a human resources professional. I'm sharing here some information I have learned from mining the depths of Google, trying to stitch it all together into a coherent post. Learning about the comparative realities of living here or in the USA (I'm sticking to just one country for simplicity's sake) is both fun for the expat ("I knew I wasn't crazy - that shit is expensive!") and cautionary for the lovebirds contemplating a move figuring it will all work out somehow (goddess bless them!).
The first thing to understand is that economies are different on many different levels: the price of things, the salaries people can earn, the taxes one pays, the non-cash (and deferred cash) benefits people earn over time, how value depreciates over time, how the banking and credit systems operate, what services are provided by the government, etc. In the case of Brazil and the USA - believe me - they are two different worlds that do not easily equate/translate.
Most travelers think in terms of the currency exchange rate: "Oh Brazil will be an affordable vacation destination; the exchange rate is in our favor, unlike London (for example)." Which may well be true, but moving here to live, work and retire is another matter altogether.
For the new resident, the impulse is to do a quick calculation in your head converting currencies to decide if something is expensive or not. But currency exchange rates give misleading
comparisons because they do not reflect salary purchasing power differences.
To try and sort this all out (OK, not all of it, but enough to wrap your head around it) let's look at three different ideas: cost of living, salary purchasing power parity, and comparative salaries across borders. This is a vastly simplified view, but as I came to discover online, this notion of understanding how one's life will change financially when moving abroad is insanely complex and has birthed a whole industry of companies willing to sell you "calculators" and personalized reports to help you see into your future.
Cost of Living
To help me understand this topic I relied heavily on the website www.xpatulator.com where they lay things out in a pretty simple way and offer more detailed analysis for a fee.
Simply put, 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, or a broad set of cost points that you can compare in each location.
So in the case of the cost of living comparisons listed at Xpatulator they take 13 different "baskets" of costs - things like groceries, furniture and appliances, education, healthcare, household costs, personal care, recreation and culture, transportation, etc. and compare these aggregate expenses - this index.
Using their index they came up with this ranking of the most expensive cost of living locations in the world.
April 2011 Cost of Living Ranking: Country, City
1. Japan, Tokyo
2. Venezuela, Caracas
3. China, Hong Kong
4. Switzerland, Geneva
5. Switzerland, Zurich
6. Japan, Osaka
7. Brazil, Sao Paulo
8. Japan, Nagoya
9. Liechtenstein, Vaduz
10. Norway, Oslo
11. Brazil, Rio de Janeiro
12. Australia, Sydney
13. Japan, Yokohama
14. Brazil, Brasilia
15. Australia, Canberra
16. Denmark, Copenhagen
17. Russia, Moscow
18. China, Shanghai
19. Angola, Luanda
20. United Kingdom, London
21. Vanuatu, Port Vila
22. Australia, Melbourne
23. Australia, Perth
24. Korea Republic of, Seoul
25. Singapore, Singapore
New York City in the US of A is listed as #43. You can see it is no longer all about the US front and center. The WORLD (including Brazil) has become an expensive place to live!
Salary Purchasing Power Parity
According to the folks at www.Xpatulator.com the core strategy driving expatriate pay programs globally is the principle of protecting an employee‘s domestic income and spending power, irrespective of global location. In the short term, exchange rates, even when averaged over a period of time such as a year, are not a good measure of the comparative value of a salary in relation to its comparative international purchasing power.
In simple terms the salary purchasing power parity is the rate of salary purchasing power that equalizes the purchasing power of different currencies, given the relative cost of the same basket of goods at the exchange rate versus the US Dollar.
But I would add there are still differences in the QUALITY of the goods and services bought. For example, a home washer and dryer in the States might finish a load of jeans from start to finish in less than 2 hours. In Brazil is could take upwards of 5 hours. Or hiring a plumber to reroute your water lines to remodel your kitchen may take half a day in the states and four days here, depending on who your local plumber guy is, and given the concrete nature of building construction here.
This one may or may not surprise you. Brazilians (and expats finding employment in the local market) earn jack shit compared to their US American counterparts. [You have to separate out those US workers who are working here with an international company earning a US wage - more on that later.]
Where was I? Oh yeah - jack shit. For this section I am relying on some dated information, but it was the only good listing of salaries I could find AND that compared the same jobs between the USA and Brazil. Special thanks to Expat American Living in Brazil and a post he posted some time ago.
So the salaries are a bit old (2001 - 2004), which could mean the numbers cited are low-balling it. Actually, given the boom in the economy in Brazil of late (and governmental increases in the minimum salary), chances are the salaries are now a bit higher in Brazil. But given the serious economic realities in the US of late, the salaries listed may not be all too off. In any case, I am trying to compare apples to apples - even if they are slightly old.
I've taken just 6 typical jobs across the spectrum for comparison. Go here if you want to knock yourself out with additional comparisons. I'm offering the somewhat current currency conversion rate of US$1 : R$1.65 and expressing the US American salary in both dollars and reais for ease and because we are looking from the living-in-Brazil perspective.
Are you sitting? Monthly salaries, on average:
Computer programmer: Brazil - R$4,114 USA - US$3,088 (R$5,095) +24%
Teacher: Brazil - R$745 USA - US$4,055 (R$6,691) +798%
Accountant: Brazil - R$3,671 USA - US$3,370 (R$5,561) +51%
Professional Nurse: Brazil - R$1,766 USA - US$3,168 (R$5,227) +196%
Car Mechanic: Brazil - R$649 USA - US$2,526 (R$4,168) +542%
Bus driver: Brazil - R$762 USA - US$1,594 (R$2,630) +245%
Ouch. So now if you loop around back to the cost of living: rent, the price of a car, a movie ticket, a new computer. the reality is that these prices can be significantly higher here in Brazil (cars are R$40,000 - R$75,000 easy) yet the earning power of workers is significantly lower than those in the USA.
In short: if you move from the USA to Brazil - you are going to take a hit, maybe a BIG hit. Lower wages, higher consumer prices. I'll repeat what is often said: Brazil is not for beginners.
If you are looking for a reason why Brazilian children live with their parents well into adulthood (perhaps even all their life), look no further than how scarce money is and how expensive everything else is.
The lucky ones are those expats who are working here for their foreign company and are earning a wage that their company has calculated will provide for the same relative spending power as back home and as a result provide for a similar standard of living here. That's why their salaries appear so great. But even if you ask them, I bet they will report having to live on a budget.
The moral of the story for us is to live simply and to be as local as possible. We do miss the extra income that allowed us to be globe trotters for many years. But we work so much less now and enjoy so much more quality time together. We did not move to Brazil to get rich, or even to live large. We moved to re-prioritize our lives. And that we have done.
My advice? Save a boat load of bucks before you make your move. You will need it to help smooth the transition.
OK - so that's my best swing at it. What do you think? What did I get wrong? What would you add?
To read more by Jim Shattuck, about his experiences as an expat in Brazil, visit his blog "Qualidade de Vida."
I guess I can‘t really agree with the analysis.
I am semi-retired and own my own home in the state of Rio. I spend the summer months (Dec-Mar) there and usually return to the USA a richer man on account of the lower expenses in Brazil.
The advantages of living in Brazil:
I don‘t need or want a car. I can walk everywhere or take a bus for free (as a senior). That represents a tremendous savings.
My property taxes in Brazil amount to $800 per year. Here in Texas I pay over $5000 per year for a much smaller property. My place in Brazil has a game room, gazebo, swimming pool, parking lot, garage, fenced ball court, 2 separate houses and a suite. In the USA, I have a 3 Br house with typical garage and yard.
A cheap bottle of cachaça costs $3 in Brazil. A cheap bottle of vodka costs $12 in Texas.
In Brazil, I pay a housekeeper $30 for a 5-hour day, during which she cleans the house and prepares me food (cassaroles, bolos, salads) for a week using my food.
In Brazil, I pay a gardener $30 per 8-hr day, three days a month to maintain the grass, fruit trees and flowers.
I couldn‘t justify employing a regular housekeeper or gardener here in Texas, in spite of the fact that there are Mexicans who will work for $8 per hour.
The advantages of living in Texas:
Everything high-tech costs 1/2 to 1/3 the price charged in Brazil.
Clothing is cheaper and superior, thanks to our Chinese.
Tools are cheaper and far superior, thanks again to our Chinese.
Gasoline is cheaper.
Good used cars are almost free.
Satellite TV, Internet connection and phone cost about the same in Brazil as in Texas.
Airfare is about the same in both countries, but Brazil has by far a superior intercity and interstate bus system. Greyhound sucks big time.
Restaurant food in Texas is superior, owing to the variety not so easily found in Brazil, especially when it comes to Mediterranean, Italian and Mexican offerings.
Meat is cheaper and better in Texas, though the Brazilian compensates with excellent churrasco. A McDonald‘s hamburger costs more and is inferior in Brazil.
Fish is cheaper and better in Texas, especially salmon.
Fruits and veggies cost about the same in both places, though Brazil is far better when it comes to variety and freshness of fruit juices. In Brazil I can get about 20+ varieties of fruit juices at a corner bar, while in Texas I‘m limited to apple, cranberry, grape, orange and grapefruit, none of which are generally available fresh on the street.
Brazilian wine and beer are awful. A 16-oz can of Guinness that can be found in only one specialty bar in my town there costs $13, while in Dallas you can get a draft pint of Guinness on the street for $6.
Brazilian tools and appliances are awful and nobody can fix anything. Nobody there knows how to sharpen a tool, especially a chainsaw chain, chisel, saw or drill bit. On the other hand, you can hire a Brazilian electrician, plumber or stone mason for $40 a day. In Texas, they charge $100 per hour, though we can always hire excellent Mexicans laborers for much less. If you‘re stuck in Massachusetts, though, you‘re screwed.
Brazilian cars are cheap and flimsy, lacking a lot of safety features. A decent Japanese car like a Honda or Toyota costs a fortune in Brazil.
Brazilian bread, ice cream, pizzas, pies and cakes are not up to American standards, though their fresh pãozinhos are great.
Public education is worse in Brazil than in the USA - hard to imagine - though healthcare is more available, cheaper and less byzantine.
In Brazil, families are bigger and closer, parties are more numerous, girls are prettier and wear skimpier bikinis, you can drink booze 24/7 anywhere, there are few pesky cops and almost none of the damn Baptists that pollute Texas.
"Brazil is not for beginners", I had never heard this before reading your article but I can see where the thinking comes from. I am, in fact, a beginner, 23, Irish, female and fed up of the job prospects that currently exist for people my age in Ireland and the rest of Europe. Having graduated in 2008, I did three years of soul-destroying, dead-end jobs before I decided to move to Brazil in October 2010 with my Brazilian boyfriend. Luckily, I had the same Idea and saved a load of cash before moving, otherwise I would be in trouble now.
I agree with many of the things you write in your article - consumer goods are incredibly expensive compared to the US or the UK (but I think consumers there are global rarities in that there are such a large number of companies vying for their custom that of course the price is driven down - but look how much debt those countries are in now). Given a decade or so, I think Brazil will be just as competitive and cheap.
But this doesn't really bother me. What I love since moving to Brazil is that I don't even have a work permit yet and I'm getting job offers left, right and centre. To me, that is progress. My friends in Europe are all miserable because they're overqualified for the low-skilled jobs they're fighting for. I might indeed take a pay cut once I get my first job in Brazil but at least it will have prospects for the future.