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About the Economist Intelligence Unit
About the Economist Intelligence Unit

About the EIU Worldwide Cost of Living survey
What is the EIU Worldwide Cost of Living Survey?
How are the prices gathered?
How is the cost-of-living index calculated?
Can I access background information on the cities in the survey?
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Using the software
Selecting and viewing cities
Customising the index
Using and customising the salary calculator
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Using the salary calculator

What does the salary calculator do?

Step 1: Gross >> Net

Step 2: Net >> Spendable

Step 3: Cost of living calculation

Step 4: Spendable >> Adjusted spendable

Step 5: Adjusted spendable >> Destination spendable

Step 6: Spendable >> Net

Step 7: Net >> Gross

Can I save my calculations?

What does the salary calculator do?

The salary calculator works out an employee's spendable income (gross salary minus tax and social security minus housing and savings costs) in the base city and then applies the cost-of-living index to find out what his gross salary in the destination city should be. A user simply needs to choose the base city and the destination city from the dropdown boxes (which will contain every city which you have paid to access), enter the gross income in the base city in the local currency of that city, enter the marital status of the employee in question, and then click on the Calculate button.

The steps taken by the salary calculator to reach a gross salary in the destination city's currency are shown in the customisation box below the calculator. Each of these steps can be modified by the user to suit the individual and company concerned. In diagrammatic form, these steps look like this:

Step Action Which city?
1 Gross >> Net Base city
2 Net >> Spendable Base city
3 Cost of living calculation Base / Destination
4 Spendable >> Adjusted spendable Base / Destination
5 Adjusted spendable >> Destination spendable Base / Destination
6 Spendable >> Net Destination city
7 Net >> Gross Destination city

Step 1: Gross >> Net

On the basis of the base city gross income and marital status details entered by the user, the calculator will use the EIU's disposable income table for the city in question to find out what that person's take-home pay is. The calculator shows what percentage of gross income is taken home after tax and social security payments have been deducted. Although every effort is made to keep the disposable income tables current, if you know that this percentage figure needs to be adjusted, you can overwrite it and hit the Recalculate button to redo the sums. Please note that the EIU Worldwide Cost of Living site does not have disposable income tables for every city. If you get a message to this effect, you will need to enter a percentage figure yourself.

Step 2: Net >> Spendable

The calculator now knows the employee's net salary. However, net salary is not the same thing as spendable income, which is the figure to which the cost-of-living index applies. To reach the level of spendable income, the computer subtracts the cost of housing and savings from net salary. As a default, the computer applies the so-called 40% rule, a standard assumption that 40% of a person's net income will go towards housing and savings. The computer applies a default ratio between housing and savings of 3:1. Each of these values can be overwritten: just click on the Recalculate button to do the sums again. Having subtracted the housing and savings costs from net salary, the calculator has now computed a value for spendable income in local currency in the base city.

Step 3: Cost of living calculation

The calculator now needs to work out a cost-of-living adjustment factor which can be applied to the spendable income figure in the base city. This adjustment factor is reached by taking the cost-of-living index number for the destination city against the base city, dividing it by 100 and then subtracting 1. So if the index number was 120, the adjustment factor would be 0.2. The calculator now multiplies the spendable income level in the base city by the cost-of-living adjustment factor to come up with a cost-of-living allowance.

The calculator uses the mean cost-of-living index as a default but you can choose to use the high index if you so desire. Please note that if the calculator is being used to compare cities whose indices you have just customised on the indices page, the tool will automatically use the customised index number.

Step 4: Spendable >> Adjusted spendable

Having computed the cost-of-living allowance, the calculator now adds this figure to the spendable income level calculated in Step 2. At this point the calculator also adds in the value of any hardship and other allowances. The calculator's default assumption is that there are no such additional allowances and leaves this field blank. If it is your company's policy to offer a hardship allowance for the destination city in question, just enter the appropriate figure in the local currency of the base city.

Step 5: Adjusted spendable >> Destination spendable

The adjusted spendable income level is still in the local currency of the base city. The calculator now needs to convert this figure into the local currency of the destination city. It does so by first converting the base-city figure into US dollars and then converting from US dollars into the destination-city currency. The calculator will use the survey-date exchange rates as a default, but you can also choose to use up-to-date exchange rates or to input your own custom exchange rates. Just click on the Recalculate button to redo the sums. Please note that if the calculator is being used to compare cities whose exchange rate you have previously changed on the indices page, the tool will initially default to the exchange rate chosen at that time. Remember too that the index will be automatically recalculated to reflect any changes to exchange rates you make on the salary calculator page.

Step 6: Spendable >> Net

By this stage the calculator has arrived at a number for spendable income in the destination city. The calculator now uses the exchange rate selected in Step 5 to convert the values for housing, savings, hardship and other allowances into the destination-city currency and adds the sum of all these items to the spendable income figure. As a result the calculator computes a value for net salary in the local currency of the destination city.

Step 7: Net >> Gross

The calculator now performs a similar operation to the one it undertook in Step 1. It uses the EIU disposable income tables to find out what the level of gross income must be in the destination city if take-home pay in that city is at the level calculated. That number is the gross salary which needs to be paid to the employee in the destination city to account for the cost-of-living difference with the base. In cases where there is no disposable income data available, you at least know the net salary that needs to be paid to the employee in the destination city to account for the cost-of-living difference with the base.

Can I save my calculations?

If you have customised the calculator, whether by changing exchange rates or overwriting values, and wish to save these adjustments, you can do so by hitting the Save settings button. The next time you return to these cities on the calculator, these settings will still be in place. You can clear the settings by clicking on the Clear settings button. Please note that any changes made to the exchange-rate fields in the salary calculator will be reflected for the relevant cities on the indices page.