Business Analytics Blog

Business Analytics Blog

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

In which global city would you have the highest disposable income?

Category : Figure It Out

A few months ago I blogged about whether the high wages in London actually made up for the high cost of living, and compared it to other major cities in the UK.

A few outlets of the UK media picked up on this, and it proved to be quite popular (read it here in the Londonist). The main question I received was “How does London compare to other cities across the world?”

It intrigued me too – if I were to buy a one-way ticket to any city in the world then in which one would I be best off, financially?

Income v. Rent

I collected data from 27 cities across the world. There wasn’t any particular logic as to which cities I chose, but the one rule I did have is that I could only consider one city per country.

The data itself came from Numbeo (correct as of February 2016) - the world’s largest database of user contributed data about cities and countries worldwide.

To start with, I compared the average income after tax with the average rent for a one-bedroom flat in the city centre.

Figure 1: Average monthly income after tax and average rent per city

The average income for residents of Zurich sticks out like a sore, but very rich thumb. My immediate thought was that the data is clearly erroneous and has undermined the analysis of my previous blog.

However, I’ve looked elsewhere – a handful of websites all inform me that the average wages in Switzerland are indeed astronomically higher than other countries. This is Money says that the average starting salary for entry-level professionals was £66,671 in 2014.

Disposable Income

Subtracting the rent from the income reveals how much money is left in the kitty for your monthly outgoings – things like utilities, food and leisure.

Figure 2: Average monthly income after rent per city

On the right side of the chart, Zurich stands out has having more than twice as much disposable income a month of the cities in my analysis. Vying for a consolation second position, average residents in Oslo, Helsinki and Sydney have the most money left over after their rent – around the £1,200 mark.

Depressingly for me, London features further over to the left hand side of the scale, with under £600 a month of disposable income left over. But it could be worse – for both Moscow and Rio de Janeiro residents the average rent in a one-bedroom flat is actually more than the average monthly income.

Consumer Price Index

Before drawing conclusions, I’ll need to adjust these figures to reflect how much everything costs in each city. This effect can actually be quite dramatic. The consumer goods prices in Mumbai are 31% the price of those in London.

To calculate the effect, Numbeo has the Consumer Price Index (CPI) “a relative indicator of consumer goods price, including groceries, restaurants, transportation and utilities”. I’ve scaled it so that the index is relative to London, which has a CPI of 100. So in the case of Mumbai, the CPI is 31. Below reveals the CPI for each of the cities.

Figure 3: Consumer Price Index per city, normalised at London to 100

In spite of all the disposable income, residents of Zurich have to fork out 37% more for consumer goods than Londoners. In addition to Zurich, only in New York and Oslo are goods more expensive to buy than in London.

Adjusted Disposable Income

The final step to take here is to adjust our initial Average Monthly Income after Rent using the CPI, so we have a like-for-like comparison in each city.

To use the earlier example, if we had £310 in Mumbai then this would be adjusted to £1000, as this would be the equivalent amount if you were to spend it in London. In other words, I could buy just as much in Mumbai for £310 as I could with £1000 in London.

Figure 4: Average disposable income after tax, adjusted for Consumer Price Index

So, where should you live and work if it’s disposable income you are after? No prizes for guessing – it’s Zurich. A Londoner living and working in the Swiss city would feel £1,751 better off per month than if they stayed in London.

 Mercer recently named Zurich as the second best city in the world to live for quality of life. And they say money can’t buy you happiness.

Toronto, Berlin and Helsinki share second spot with around £1,400 adjusted average monthly disposable income (there is only £2.80 to separate the three, which I consider to be negligible due to rounding).

As for Londoners, we actually have it quite tough. In fact, we are currently on par with Athens, the city at the heart of a financial crisis. The high rent is stretching our bank balances each month, and we would feel a lot better off in a whole host of international cities.

Moving to Moscow, however, probably isn’t the answer.

About the author

George Hodgson-Abbott
George Hodgson-Abbott
As an Associate Consultant with a background in Mathematics, I use a range of analytical techniques help clients get insights from their data. I have experience spanning across Central Government, Financial Services, Healthcare and CPG, and I am particularly interested in predictive modelling, data science and analytics technology.

Leave a comment

Your email address will not be published. Required fields are marked *.