re: India and Tech Outsourcing

I was reminded by the article Qiwi links to in a previous post of something very interesting about the price differences between Indian and U.S. American.

Programming jobs have delivered a nice upper-middle-class lifestyle to the people in this room. They own apartments. They drive new cars. They surf the Internet and watch American television and sip cappuccinos.

Own a nice condo, drive new cars (predominantly Mercedes according to my Indian co-workers), live in the burbs with a one hour commute - they are receiving the same value as American programmers. Actually, according to several of my co-workers they are better off working in India for Indian rates.

Huh?

I have to admit, I'm confused. How can Indians cost a fraction of Americans, yet feel they are receiving similar or better value? My co-workers cannot be lying, their revealed preference matches their talk. Many have come to the U.S. for a bit and returned to India.

There's something fishy going on here and it's not because of free trade.

Share this

Isn't the cost of living

Isn't the cost of living much lower in India than in the U.S.?

Apparently!

Apparently!

That is why I went straight

That is why I went straight to comparing goods each gets with their salary. Cost in what? I don't care how many dollars I get in exchange for my labor, I care what goods and servics I get in exchange for my labor. My co-workers reveal the same thinking.

Is there something here not

Is there something here not covered by "real wages are determined primarily by the productivity of labor"?

The thing that surprises me isn't that they have a comparable standard of living. What surprises me is that the exchange rates haven't adjusted to the point where nobody thinks of Indian wages as lower than American wages for comparable work.

It would seem that retirees should move overseas, where their dollars could buy so much. What gives?

What gives? Cap'n, if I

What gives?

Cap'n, if I knew, I wouldn't be talking about it, I'd be arbitraging it! :-)

From my experience (I spent

From my experience (I spent 15 years in South Africa before returning to the US at the end of 2002), there are three main components to cost-of-living comparisons: land, local labor costs, and cost of credit. Our land cost about a tenth per acre in South Africa as land similarly distant from industrial, commercial, entertainment centers in the US. Nominal local labor costs were also about 10-20%, though once you factor in productivity, local labor was more expensive (an average US cleaner is better educated than an average SA cleaner). Land can't move, so its price is very dependent on things like local unrest. Labor can takes several year to train, so it has a long lag. Credit rates could fluctuate quickly, but were controlled by the government and an oligarchy of banks. The currency exchange rate seemed to be where the arbitraging took place.

It's reeked havoc with our intuition to make the change. Our grocery bill was about a quarter there what it is here, but we couldn't find a working car there for under six month's salary, while in the US we have bought working (well, just) cars for a day's salary.

It would seem that retirees should move overseas, where their dollars could buy so much. What gives?

My wife's parents did that (Holland to South Africa), but only after two of their three children had already made the move. I would guess that a lot of the things important to retirees (family, friends, and familiar things) get more expensive instead of cheaper when they move.