What Is The Difference Between A Formula And A Function Expatriate Salary Purchasing Power Parity

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Expatriate Salary Purchasing Power Parity

The principle of protecting the domestic income and purchasing power of employees, regardless of global location, is a key strategy for global management of foreign payroll programs. Many organizations spend a lot of time on how to achieve this.

Exchange rates are volatile because they are based on short-term factors and subject to significant distortions from speculative movements and government intervention. In the short term, exchange rates, even when averaged over a period of time (eg a year), are not a good measure of the comparative value of a wage compared to its international purchasing power. At least in the short and medium term, apparent changes in a country’s wage level may be mainly due to changes in the exchange rate. In response, an online tool was developed to calculate the Purchasing Power Parity (SPPP) of wages in every country in the world. Simply put, the SPPP is a wage purchasing power rate that equates the buying/purchasing power of different currencies, taking into account the relative cost of the same basket of goods against the exchange rate and one US dollar. This means that when converted into different currencies based on SPPP rates, a given salary buys the same basket of goods and services in all countries.

The basket of goods and services used in SPPP calculations is derived on an international basis and includes certain elements that are often omitted from foreign cost-of-living data (most notably housing costs), but any or all of the 13 basket groups may be included or excluded. calculation. The SPPPs give a relatively good picture of the living standards differences between individual residents and wages in different countries. Internationally comparable data are crucial for designing a sustainable foreign wage policy and monitoring progress. Market exchange rates provide misleading comparisons because they do not reflect differences in the purchasing power of wages. The purchasing power of wages takes into account price differences between countries and thus measures actual quantities. By establishing purchasing power parity, where one dollar buys the same amount of goods and services in all countries, SPPP conversions allow cross-country comparisons of wage levels without market and exchange rate distortions in the wage survey.

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