How $15.50 In Australia Can Still Equate To $9.50 In The US

Comparing the cost of living between different countries is always difficult. News from the US this week that President Barack Obama would like the American minimum wage to rise to $US9 an hour prompted blogger and statistician Matt Cowgill to compare the minimum wages mandated in Australia and the US over time. Among the data he unearths? OECD measures suggest that you might need to earn $15.50 in Australia to purchase the same volume of goods that $9.50 would buy you in America.

Money picture from Shutterstock

Those estimates of 'purchasing parity power' are based on 2011 numbers (the most recent available; note that we saw Australia/US dollar parity in 2010 and have stayed near there ever since, so the exchange rate factor isn't massive in terms of explaining the difference). Curiously, while the minimum hourly wage in Australia at that point in 2011 was $15.50, in the US it was well below $9.50 (as the current Obama push makes only too clear).

It's a reminder that complaints about the costs of goods in Australia can't be considered in isolation from what we earn. If goods cost more than the US but we're also earning more, our ability to purchase those items doesn't differ as radically as complaints about the cost of technology would suggest.

Few IT workers outside of very basic support jobs will be paid the minimum wage, but the level at which it is set will impact the cost of other goods. Cowgill also points out that global economic data doesn't support the idea that a higher minimum wage translates to either lower or higher employment levels; both scenarios exist. The ratio of the minimum wage to the median wage also varies over time; there's no obvious consistent pattern in Australian salaries on this point. Hit Cowgill's post for a much more detailed analysis.

How does Australia's minimum wage compare? [We are all dead]


Comments

    "If goods cost more than the US but we’re also earning more, our ability to purchase those items doesn’t differ as radically as complaints about the cost of technology would suggest."

    I agree with this but some companies' pricing models still defy logic. Our ability to purchase a little more doesn't stop me from feeling pi**ed off with said companies.

    In short we pay more - so we are all earning more. So once we get the price of items coming down there is less pressure on business to increase pays and we will, over time get back to an equilibrium.

    The difference in the cost of living between Australia and the US is not justification for the rampant price discrimination practised by some companies. If you are talking about locally produced goods and services, where the cost of living actually factors into the production costs, it's a different story. However most of the good people are complaining about are manufactured overseas, with local costs only relating to product distribution and support.

    When looking at that $9.50 US, don't forget to add local state taxes.
    And the tip!

    What's the point of being paid more in Australia if everything is just going to cost more because of it?

    Where possible, I choose to buy $9.50 worth of US goods while living in Australia, earning $15.50.

    If these massive corporations can leverage globalisation to lower their costs - I don't see any reason the consumer shouldn't do the same.

    If pricing was based on wage comparison then what about countries like India where the monthly wage is less than $200.

    So, they make it more expensive because we can afford it? This just drives more people to import, which isn't as good for the Australian economy (hence why the government even cares) or they turn to software piracy.

      How is importing not good for the Australian economy? You need to read up on comparative advantage in macroeconomics. If we're not importing cheap goods from China, other countries will. And they'll generally be much better off than us because of it.

        Okay, fair enough. But firstly I said not AS good. Secondly, I understand how import/export can be good for the economy.

        Software is a mostly what I'm talking about. There are local distributors in Australia for many software products that employ Australian staff and pay Australian taxes. The product is still technically "imported" but it is done so officially and with a higher percentage of the cost redistributed within Australia rather than overseas.

        The trade you're talking about is buying something cheaply from overseas because it's cheaper than manufacturing it locally - it's global competitive pricing. It's not competitiveness if it's the same product from the same company distributed from a different country - it's price gouging. You were arguing against a point that I did not make.

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