Burgernomics

A few months ago I interviewed for a job in London. I’ve always wanted to live in Europe and this role seemed made for me. But moving from the U.S. to London is a big step, so when I was offered the position I of course turned to data to help me decide if I should accept.

There were several things to consider – lifestyle, family, and of course financial considerations such as salary and cost of living. It’s hard for data to help me with lifestyle and family but there are lots of data resources to help compare financial impacts.

Exchange Rate

The most obvious step would be to take the UK salary in GBP (Great British Pounds) and convert it to USD (US Dollars). So let’s say I make 50,000 USD in the US and the role in the UK was 40,000 GBP.

• Today, the exchange rate is 1.26 USD for 1.0 GBP. So 40,000 GBP would be 50,355 USD. Pretty comparable eh?
• Except that with Brexit the exchange rate between GBP and USD is fluctuating quite a bit. On April 16 of this year, that same 40,000 GBP would have been 57,200 USD! It’s hard to know where and when it will stabilize. The volatility in just the last 60 days is worth noting:

Cost of Living

Numbeo has a cost of living comparison for one city to another. From what I’ve seen so far, it’s pretty accurate:

Salary Expectations

But exchange rate and cost of living forget one important factor – tech salaries aren’t equal from one city to another. Seattle is one of the highest paying cities for tech. We are an employee market with more demand than supply and a lot of companies looking for qualified tech talent. There are a few other cities that have comparable salaries, but I don’t think any cities in Europe will compare.

Big Mac Index

Perhaps the most interesting way to look at this would be to turn to the Big Mac Index. When I first heard about this I thought it was a joke. But nope, it’s really a thing although they say it “was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible.” The Economist created the Big Mac Index in 1986 as an informal way to compare the purchasing power of two currencies. You can look at how much a Big Mac costs in one country compared to how much it costs in another country. Or you can look at how much time you have to work to buy a Big Mac in each country. In 2015, the average working time required to buy a Big Mac in Hong Kong was 8.6 minutes but in Kenya it was 172.6 minutes!!

The Economist’s website shows how this can be applied between the UK and US:

If a nation’s currency is “undervalued,” it means the rate at which it can be exchanged for other world currencies is too low.

The Big Mac Index is more fun than foolproof. Wikipedia mentions that fast food restaurants like McDonalds will be much more expensive than local restaurants in some countries. And in countries like India it isn’t as much in demand. There’s a similar index called the Kentucky Fried Chicken index in Africa because KFC is much more common there than McDonalds.

Interesting Side Note: You can’t get a Big Mac in India apparently because the country is mostly Hindu. You can get a Chicken Maharaja Mac instead.

Verdict

As hard as I try it was really difficult to see if moving to London made financial sense because of Brexit. But everything above showed me that as long as the exchange rate doesn’t tank too much (and hopefully it rebounds soon) I’ll be okay.