Measuring Cost of Living for Ordinary Residents in Cities: A New Index

Abstract

Cost of living is an important indicator to track and monitor basic living standards for cities. There is no reliable and consistent index available in the literature for comparing the cost of living across different major cities to guide policy analysis. Commercial cost of living surveys, while very useful in facilitating compensation decisions for expatriate managers, are inadequate as they do not account for differences in consumption patterns among cities and also do not consider differences in lifestyles between ordinary residents and expatriates across cities. In this context, this paper makes a pioneering attempt in the literature to come up with a comprehensive way to measure the cost of living for ordinary residents of 103 cities in the world. One of the features of the paper’s empirical methodology is that it makes a distinction between the cost of living for expatriates and ordinary residents. We focus on the results pertaining to ordinary residents in this paper.