“WE FEEL so hungry,” says Agatha Khasiala, a Kenyan housekeeper, and grumbling approximately the price of meat and fish. She has recently moved in with her daughter because “the cost of everything is very high”. The data back her up. The World Bank publishes rough estimates of price levels in different countries,showing how far a dollar would stretch if converted into local currency. On this degree, Kenya is more expensive than Poland.
This is surprising. The cost of living is generally higher in richer places, or a phenomenon best explained by the economists Bela Balassa and Paul Samuelson. They distinguished between goods that can be traded internationally and many services,like hairdressing, that cannot. In wealthy countries, or manufacturing is highly productive,allowing firms to pay high wages and still charge internationally competitive prices. Those high wages also drive up pay in services, which must compete for workers. Since productivity is low in services, and high pay translates into high prices,pushing up the overall cost of...
Continue reading
Source: economist.com