NCPA - National Center for Policy Analysis

The World's Most Expensive Cities

February 12, 2013

Money may make the world go round, but some places spin faster than others. Tokyo, for example, has regained its title as the world's most expensive city in an annual cost-of-living survey released recently by the Economist Intelligence Unit (EIU). It's a familiar, if dubious, distinction for the Japanese capital, which also tops similar recent lists from other groups, says the Fiscal Times.

  • Among U.S. cities, New York and Los Angeles are the most expensive, though Vancouver is still the most expensive location in North America -- 6 percent more expensive than the Big Apple.
  • New York is closing the gap, though, because of a strong dollar and rising costs.
  • In fact, 112 of 131 global cities saw their cost of living fall relative to New York, with costs relative to the Big Apple rising in just 12 of the cities surveyed.
  • Overall, New York rose from 27th to 19th place in the rankings.

What do those rankings really mean, though? As Carl Bialik points out in the Wall Street Journal, the methodology behind such rankings gives them limited usefulness. "Though these rankings usually are reported as if they are universal, they are based on the spending habits of a tiny sliver of the population: expatriates at an executive level who take their spending habits with them around the globe," says Bialik. So while the rankings may help figure out how much globe-trotting executives should be paid when they hop from one continent or city to another, they are far less instructive for locals.

  • Caracas, for example, ranks ninth in the EIU survey, but that ranking is skewed by a fixed official exchange rate between the Venezuelan bolívar and the U.S. dollar.
  • For Zurich, currency effects drove expenses down 39 percent relative to New York, dropping the Swiss city from the world's most expensive a year ago to seventh place this year -- even though prices for locals haven't changed much.

The rankings look quite different when local income levels and prices are compared -- in other words, when rankings account for the purchasing power that local wages provide.

  • Mumbai may be the least expensive city in the EIU rankings, but it takes an average of 56 minutes of work to earn enough money to buy a Big Mac, according to a 2012 UBS report.
  • Buying an iPhone 4S would take 338 hours of work in Mumbai, based on the weighted net hourly wage in 15 professions.
  • In New York it takes just 10 minutes to earn enough for a Big Mac and 27.5 hours for an iPhone.
  • Workers in Zurich are able to afford the iPhone the quickest (22 hours of work) while those in Manila would have to put in 435 hours.

Sources: Yuval Rosenberg, "iPhone Index: The World's Most Expensive Cities," Fiscal Times, February 11, 2013. "Worldwide Cost of Living Index 2013," Economist Intelligence Unit, February 2013. "Prices and Earnings," UBS, September 2012.


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