London is the most expensive city in the world
while Swiss cities are home to highest earners
A report by UBS

20 March 2008: London, Oslo, Dublin, Copenhagen and New York are the world’s five most expensive cities. A study by Swiss bank UBS shows that life is particularly expensive in these cities if the cost of housing is included. The basket of goods and services costs the least in Kuala Lumpur, Buenos Aires and Lima. European cities dominate the earnings tables, with the highest net incomes are enjoyed in Zurich, Dublin, Oslo, Geneva and Luxembourg. New York is the city with the highest earners outside Europe. Workers in Manila, Delhi and Jakarta have the lowest income.

THE MOST EXPENSIVE CITIES IN THE WORLD
ECA International survey (June 2008): Introduction | Table: World | Table: Europe | Table: Asia |
UBS survey (March 2008): Most expensive cities (Intro) | World's most expensive cities (table) | Richest cities by personal earnings (table) | Richest cities by purchasing power (table |
Mercer survey (July 2008): Most expensive cities
EIU survey (2007): Most expensive cities

RICHEST CITIES BY GDP
Introduction | 150 richest cities in 2005 | 150 richest cities in 2020 | Europe's richest cities |

Since UBS conducted its last comprehensive global survey of prices and earnings, in early 2006, there has been a dramatic shift in the relative values of currencies. And as exchange rates move, so do relative price levels around the world. The new UBS study 'Prices and Earnings' updates the detailed statistics on living costs from its 2006 survey to reflect most recent movements in exchange rates and inflation.

The purchasing power of workers is highest in Zurich, Geneva and Luxembourg and lowest in Manila, Mumbai and Jakarta. However, the basket of goods used in the research is biased toward Western European consumer standards. Such goods are comparatively expensive in developing countries. For example the research considered only the cost of western-style housing in cities like Mumbai. The cost of such accommodation is high compared with normal local housing.

The US dollar’s sharp depreciation – at the time of the research, down almost 18 per cent against the euro since the last survey in  – has made New York a much more affordable place for European shoppers. London is now 26 per cent more expensive. On the other hand, Eurozone cities are even more expensive. In 2006, Barcelona and Hong Kong were similarly costly. Now the Catalonian port city is 22 per cent more expensive than the Chinese one. The cheapest cities are in South Asia and South America. Buenos Aires is nearly as expensive as Mumbai. The depreciation of the Indian rupiah make both countries attractive tourist destinations.
 
From early 2006 to the third quarter of 2007, Caracas climbed 10 places in the ranking, becoming nearly as expensive as Singapore. Inflation in Venezuela is soaring, up nearly 37 per cent aggregated since the UBS survey was last carried out. High oil prices are behind the rapid growth of Venezuela’s economy. With money pouring into the country and a limited foreign exchange market, inflation has soared to the highest levels among the cities studied, Table

Zurich's workers take home the most, after tax and social security deductions. In addition to accounting for exchange rates and inflation, the recalculated Prices and Earnings index also recognizes that a slice of economic growth is passed on to the workforce in the form of real wage increases. In the updated study, the highest gross wages are paid in Scandinavia. But once taxes and social security are accounted for, it is workers in Zurich and Dublin who retain the greatest share of their wages. Table

With different growth rates and diverse currency effects, many cities in the UBS study have been re-ranked this year. Salaries in international comparison in the United States have been burdened by the depreciation of the dollar. Coupled with inflation, this effect pushed Chicago down eleven places in the ranking. And New Yorkers now only rank thirteenth in gross earnings. Please note that changes in the wage ranking are less dramatic than those in price levels. Inflation tended to outpace salaries since the last study, driven by sharp increases in energy and food prices. Table

Jakarta has the lowest average wages among the cities tracked by UBS, followed by Delhi, Manila and Mumbai. Compared to our top five European cities, Jakarta’s workers are paid some 95 per cent less. However, workers in the lowest paying cities at least enjoy the lowest tax rates. However, this can entail significant hidden costs in the lower-paying cities that should not be ignored. These can come from, for example, the lack of health insurance, or a weak social safety net, or deficient tax-funded infrastructure. While Zurich’s residents may take home the highest net wages, the Swiss city does not offer the western world’s lowest tax rates. Taxes and social security in percentage of gross income are lower in Dublin and Madrid for example. Overall, Dubai, recreating itself as a new financial center, and with the large United Arab Emirates oil reserves, offers one of the lowest tax and social contribution rates in the UBS ranking. Table

Calculating purchasing power from gross wages (before taxes and social contributions) can indicate how much companies value their workers’ productivity. USB finds higher levels in Western Europe and North America than in emerging countries, an observation which has not changed since our last study. Although USB says that some developing cities have caught up a bit. Beijing, for example, has closed the gap on Zurich by 1.1 percentage points. But emerging markets have had much higher GDP growth, usually reflecting a gain in productivity. Cities in the lower quartile of our ranking grew by almost 17 per cent, on average, compared to 7 per cent for cities in the highest quartile. So why does the standard of living not grow faster in emerging cities? Part of the answer lies in inflation rates. Wage growth should be aligned with price movements, but wages tend to adapt less rapidly. In the last seven quarters, prices in emerging economies grew much more steeply. Cities in the top quartile of the ranking had an average inflation of 3.9 per cent since the last USB survey, compared to 12.5 per cent for cities in the lowest quartile. Table

EU newcomers have lower purchasing power than Western Europeans. Eastern European cities all rank in the lower half of our purchasing power ranking, as inflation has erased some of their strong wage gains. In a global comparison, net purchasing power is highest in Swiss cities and in Luxembourg. Berlin ranks high in terms of hourly purchasing power. However, as is the case in many European cities, less time spent at work than in Asia or the US leaves the German capital only at the low end of the top one-third of our purchasing power ranking when we use yearly wages. Table

Methodology
Standardized price and earnings surveys were carried out in 71 cities around the world in early 2006. A number of independent agencies were involved. USB sent out a questionnaire on 122 goods and services and 120 data points on wages, deductions and working hours for 14 different professions. A total of more than 30,000 data entries were collected and analyzed. The surveys were conducted by local UBS employees, correspondent banks, consumer organizations and chambers of commerce as well as by universities, members of the student organization AIESEC and selected individuals. A number of factors should be considered when interpreting the results. Since all the data collected had to be converted into a single reference currency, it is subject to the daily fluctuations in exchange rates. The price and earnings data gathered in early 2006 were then multiplied by each city’s rate of inflation and converted into our reference currency at the prevailing exchange rate. In order to smooth out the effect to day-to-day currency fluctuations, USB used the average daily spot rate November 2007 to January 2008 for this update. In calculating the earnings index, USB not only considered exchange rates and inflation, but also factored in the assumption that some economic growth is due to productivity improvements and was therefore passed on to employees.