Even when information is given in plain english , can we compare salaries across two countries in different currencies ?Consider the following info on average Salaries from one year postgraduate course in IIM A , for a Indian and overseas position 
Average Indian Salary - 20,16,000 INR
Average US Salary - 1,22,000 $
What did you do when you read the above salary . You should have multiplied the US salary by conversion rate ( at RS45/$ it comes to about 54, 90,000 ) and compared the two salaries in common currency say INR . At the first glace it looks like US position has a considerable advantage over the Indian one. By experience we know that cost of living is higher in US and these two salaries cannot be compared in a crude method as above. So now few Questions araise
- How to quantify "cost of living" ?
- How to compare salaries in more scientific way ?
How to quantify "cost of living" ?
On more googling i could find out a term called as Purchasing Power Parity - PPP
The purchasing power rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods. Using a PPP basis is arguably more useful when comparing differences in living standards on the whole between nations.
Here basically we take a constant basket of good and services ,normally used by common man and compare its cost across the countries under examination and arrive at a factor called as PPP. This factor is NOT constant for all goods/services between two countries but varies substantially for many reasons .Some of few example are given below
1. Government intervention
This can happen when Govt to protect local industry , to contain inflation etc.
Ex : India has a import duty of 100% for automobiles imported in completly assembled form .This is enhance the local price advantage locally assembed/produced automobiles.On the other hand to deflate the ever growing inflation India has banned export of rice varieties other than basmathi.
2. Demand Supply
This might be due to demand /supply mismatch.
Ex Due to availability of cheap labour , services involving human labour is always
cheaper in India than in US. a Hair cut in a good saloon in India cost normally less Rs100 whereas it would have cost 20-30$ in US.( i havnt done a hair cut in US , jus heard it from friends )
But comparing a basket of goods/services a single factor is arrived at. I tried to google out the official PPP factors for various countries but couldn't find official info on that . I could find the charts showing nominal GDP values and PPP GDP values of varies countries, released by International Monetary Fund IMF . On comparing the these two values for every country we could calculate the PPP of each country.Set of countries which have high immigrant Indian population are chosen and its PPP values are given below.
So this quantifies the cost of living comparison across countries.
How to compare salaries in more scientific way ?
Lets take a nominal salary in INR and try to find its equivalent in other currencies by the following formula
Equivalent Salary of Country(X) = (Indian Salary / Currency Conversion rate)*( Indian PPP / PPP of Country(X))
Let us consider Indian Base salary as 10 Lakhs INR for our comparison.
$ equivalent in US of 10 Lakhs INR with similar living conditoins is calculated as ( 1$ = 45 INR)
( 10,00,000 / 45 ) * (2.725/0.987) = 61,353 $
So 10 Lakhs INR in India = 61,353 $ in USA
Similar conversion for 10 Lakh INR in varies countires in their respective currencies are given below
|Country||Conversion Rate||Equivalent Salary|
|US||45Rs/$||61353 US $|
|Australia||41.4 / Australian $||84380 Austrailan Dollar|
|Singapore||32.5||64,890 Singapore Dollar|
This comparison makes sense when you intend to spend the same way in the two countries to maintain a similar lifestyle. If the intention is to save extensively by spending frugally and return to home country in due course ( as most emigrant population does ,) the above comparison makes no sense . Also there are other factors to consider such the tax rates in the working country , how is money brought in India considered etc .
Coming back the question of comparing avg salaries for a IIM A graduate
Average Indian Salary - 20,16,000 INR ( US Equivalent = 1,23,687 $)
Average US Salary - 1,22,000 $
Now the comparison makes sense.There less than 1% deviation among the two options and infact the Indian option is marginally better.
PS: I dont have practical knowledge of how this works out. If any one has first hand info on comparable salaries in the same company (from intra company transfers ) across different countries , they can validate/invalidate this theory.