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Thursday, August 24, 2006

Purchasing Power Parity

Today's post, boys and girls, will be an economics lesson. Specifically Purchasing Power Parity (PPP) - or to put it simply, what it's like to live abroad.

When I got my contract through from Canada, I had a bit of a nasty shock. The exchange rate between the Canadian Dollar and the UK pound is about 2 dollars to the pound. Based on that, my pay in Canada is going to be 5 grand less than I started on as a Postdoc and about 9 grand less than what I would be earning today if I had carried on working. As you can imagine, I needed a bit of a sit down.

However, it isn't that simple. I will be earning Canadian wages, which I will then be spending in Canada, thus the exchange rate between the UK and Canada is largely irrelevant. The only time it will affect me, for better or worse, is during my first few weeks when I am living off my savings awaiting my first pay cheque (Good - my meager savings will stretch further); during holidays (Bad - getting a round in at christmas will be very expensive) and when I transfer money back to the UK (Bad - my student loan repayments etc will take up a much larger chunk of my wages relatively speaking than before).

Thus, the cost of living in Canada is the all important economic measure. PPP is the formal name for how much it costs, relatively speaking, to live in a country and it is usually expressed in US $ for convenience. There are a number of ways of measuring PPP. The best known is Time Magazine's "Big Mac Index", essentially "How much does a Big Mac cost in different countries?". A Big Mac was chosen because not only is it ubiquitous, it is a microcosm of a country's economy. To make one requires local resources, food, fuel, wages for staff and taxes at a range of points through out its production, sale and purchase. In recent years, the "Starbucks Skinny Latte Index" has also been used.

More formally the OECD calculates the cost of a "shopping basket" consisting of a wide-range of daily items and services, to generate its own measure of PPP.

In this case, it seems that the 2:1 exchange rate is far too much. By my maths, it's closer to about 1.4:1, thus my wages are about what they were when I started my Postdoc. To be honest, that's OK with me. I'm not a particularly materialistic person. My few vices are cheap and I don't have any really expensive hobbies. Furthermore, this opportunity is essential to getting my career back on track and trying a fresh start, both professionally and personally.

The only real kicker will be the loss of status in Canada. In the UK, I am treated as a full member of the University and entitled to the full range of benefits and privileges afforded everyone from cleaner to Professor. Pay is the only real difference. Not so in Canada. Postdocs are NOT members of staff. Rather we are self employed, independent contractors. This means no benefits, pension, sick pay, healthcare or vacation entitlement (although I can by agreement arrange 4 weeks "personal" time off). Most of the student and staff services are apparently off-limits or un-subsidised and I don't even get my tax deducted at source (I have to retain my own financial advisor to do so instead)!

The lack of a pension is worrying, I have already missed 12 months of my Uni pension and as I pass thirty I am becoming uncomfortably aware of how little pension provision I have. I will still have to pay into the Canadian State Pension however. What will happen to that money if and when I leave Canada I am unsure about. Ideally, I'd transfer it over to the UK into my university pension scheme, but I may simply end up having to claim a small Canadian pension upon retirement in addition to any UK pension that I am receiving. I'm going to have to get more advice on that.

In practise, I suspect that when I visit the personnel office on my first day they will furnish me with a helpful guide, and in the internet age most of what I need will be on the web (I have already done some preliminary sniffing around, and it seems that there are very few locked pages that I can't access, so even if they don't provide information for Postdocs, I can probably find it on the Research Assistant's page or the Teaching staff's page).

That all said, I'm still dead excited! I leave the sport centre on Friday and return to my parents next Thursday. Assuming that my work permit arrives in a timely manner (it is supposedly a rubber stamp affair, Postdocs are exempt from the immigration points scheme), I hope to fly out by the middle of September. I can't wait!



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