Why is Canada Expensive?
A few weeks ago, I attended the Academy of Management annual meeting in Montreal, Canada. Having recently written an entry on the prices of goods and services in China, I kept my eyes peeled while traveling in Canada. A subway fare was $2.75, a can of cola was $1.50, and a plate of poutine – a classic Montreal dish consisting of french fries, gravy, and cheese curds, ran around $5 to $10.
Poutine, a Classic Montreal Dish
To add insult to injury, taxes on most items ran about 15%. This all led me to wonder why things cost so much more north of the border. After speaking to a wealth manager friend of mine, I think I have arrived at a reasonable answer. Prices are pretty sticky. When exchange rates change and the value of a currency changes, prices don’t move in tandem.
Two Year Value of the Canadian Dollar in US Dollars
Over the past two years, the value of the U.S. dollar has weakened by 20% against the Canadian dollar. While the two currencies are at around parity in 2010, two years prior, my $2.75 CAD subway fare would have been around $2.30. While still expensive, this would at least be in line with Manhattan prices. A decade ago, in 2000, it took $1.50 CAD to buy a U.S. dollar. So, from an American perspective, the high Canadian prices may be driven by the rapid change in exchange rate. Furthermore, the Canadian government offers social services that the U.S. government does not. While taxes are higher to pay for additional government services, consumer spending on non-governmental versions of those services (like healthcare) may be lower.
In: General · Tagged with: Canada, exchange rate, expensive, travel
The Cost of Living in China
Last year, I went to Germany and compared German and American prices. This year brought me to the Chinese eastern seaboard, where I once again had the opportunity to observe prices. The exchange rate was about 6.8 renminbi to the U.S. dollar, making one renminbi worth approximately 15 cents. The average Shanghaiese earns around $11,000 per year and the average Beijinger earns around $10,000 per year. Overall, the buying power of the dollar seems 2-4x in China what it is in the U.S. But, some goods and services were more expensive. Here is a list of the prices of a variety of goods and services I purchased or considered:
Transportation
Train ticket (no seat in a slow train): $1.50 per hour
Train ticket (nice seat in a high-speed train): $8 per hour
Cost to flag a taxi: $1 to $1.50 (depending on city)
Cost per mile in a taxi: $0.60
Cost to ride a bus: $0.15
Cost to ride a subway: $0.30 to $0.60 (depending on city and distance)
Food and Drink
Coca-cola (can): $0.45
Beer (can): $0.40
Bottle of water: $0.30
Coffee: $5
Tea: $1.50
Yogurt in a plastic bag: $0.30
Yogurt in a plastic cup: $0.75
Chicken sandwich at KFC: $2
Value meal at KFC: $3.50
Value meal at a Chinese fast food restaurant (Kung Fu, Mr. Lee’s, Yonghe King): $2-3
Street meal (no table, or a small bench): $0.45
Simple cafe meal (no tableclothes): $2
Really nice meal (i.e. tableclothes and good presentation): $5-10
Other
Basic hotel room: ~$25
Made-to-measure shirt: $27
Off-the-rack shirt: $5-100 (depending on brand and quality)
Li Ning sneakers: (local popular brand): $30-45
Admission to a tourist attraction: $1-5 for small attractions, $10 for major ones
In: General · Tagged with: China, prices
Reducing Unemployment – The Problem with the Minimum Wage
The minimum wage in the United States is $7.25 per hour as of 2010. At that rate, a person working 2,000 hours per year (50 weeks of 40 hours) would have an annual income of $14,500. Employers must pay a number of additional taxes for workers. While workers must pay 6.2% of their income for Social Security, employers must pay 6.2% of the workers’ income as well. The same system exists for Medicare, in which both employer and employee must pay 1.45% of the earnings. So, the actual cost of a minimum wage worker to an employer is (14,500*(1+.062+.0145)) = $15,609.25.
While $15,609.25 might not seem like a lot of money, it is actually quite a ton when compared to wages in other countries. In Beijing, per capita income is only around $10,000. Per capita income in Mumbai is only about $2,700. In the more remote Chinese city of Chongqing, per capita GDP is about a third of what it is in Beijing ($3,300). The American minimum wage is far higher then the average wage paid to many people.
The minimum wage was created to protect workers from exploitation. It may have lived past its purpose. At present 10% of the nation is unemployed and actively seeking a job. Even more may have given up the search. It is impossible for American workers to compete with workers from many other countries given that our minimum wage is higher than their average wage. Exportable products are sold on a global marketplace. The minimum wage made more sense when all businesses selling products on a market had to face the same wages and production costs. Now that the competition for manufacturing is global, the minimum wage is actually causing harm. It is preventing companies in the U.S. from creating jobs that are able to produce products that can be sold competitively on the global market. this would be fine if everyone had a job. Given the high rate of unemployment, unemployed Americans would be better off with competitive but lower wage jobs. Until unemployment drops to normal levels, I feel that the minimum wage should be repealed.
In: Financial Crisis, General · Tagged with: minimum wage, unemployment