The two components namely the cost of living and the salary earned by residents of a particular city are crucially linked to each other. Ideally the average salary ranges in a particular city should be directly proportional to its costs of living. However, the cost of living in the city does not only include the rent, or the basic necessities required by an individual. It includes the average entertainment costs as well. Let us find out more about the factors that are kept in view while calculating the average cost of living in a city and see how they influence the average salaries pocketed by citizens.

Which are the factors taken into account while the average cost of living in a city is calculated?

Food Prices

Here is a list of the basic food items that are consumed by most, and their prices are taken into account while making due calculations regarding food pricing:

  • Rice
  • Potato
  • Milk
  • Bread
  • Chicken
  • Eggs
  • Packaged Mineral Water
  • Cheese
  • Fruits like apples and oranges

Renting Prices that involve apartment prices in the heart of a city and in the suburbs. Here the average rent varies with the number of rooms as well.
Transportation including local transport (1 way tickets), taxi 1 km (Normal Tariff), taxi 1 hour waiting (normal tariff), monthly passes, gasoline etc.
Clothing, shoes, sports and leisure activities, monthly utilities like prepaid mobile tariff, water, electricity, garbage, heating, apartment prices mortgage rates, internet, cable, entertainment costs, are factors included while the average cost of living in a city is determined.

Cost of living versus salary in a city

As already mentioned above, the cost of living in a city is crucial in determining the pay packet in that particular city. Cities having greater costs of living definitely reward their employees with better salaries than those having lesser costs of living. Let us discover more on how salaries are determined by the costs of living.

Cost of living is nothing but the cost involved in maintaining a certain standard of living. The cost of living index generally reflects changes in the costs of living. The pension benefits, employment agreements, and other components of Social Security are invariably linked to this cost of living index. The cost of living index varies with different geographic locations of the same country. The COLA or the cost of living allowance in a particular city is responsible for necessary adjustments in salaries that are designed keeping the cost of living index in view. As salaries directly influence the purchasing power of people in a city, a “cost of living hike” in salary might be approved in order to keep the purchasing power of the people intact during inflation.

It is advisable that if you are migrating to another city for a job you should take the overall cost of living of that city into account before you start negotiating on salaries. Please do not make the mistake of including only the food and lodging costs while calculating the overall costs of living. Transportation, clothing, utility bills and all the other points included above should also be given due importance. If you are mulling migrating to another city with your family for a job, you must include the education expenses for your children as well.

Is cost of living the only thing determining the salary?

Ideally two individuals with the same qualification, experience and employment status can experience salary disparities if they are working in two different cities with different costs of living. But it would be a bit incongruous to assume that cost of living is the only thing influencing the pay packets in an organization. Your job experience, nature of job (private or public), employment status (permanent or temporary) and company policies, performance will influence your overall salary and benefits package as well.