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Comparing Income across Countries in USD is Detached from Reality: 3

In the second post of this series, I wrote about how rapid improvements in living standards of the upper-middle and middle class in India have changed how they view USA and the west in general. The central point, in my post, was that such changes in living standards and general quality of life are far more obvious if you look at changing patterns of consumption for goods and services than gross reported income in USD or other western currencies. In other words, the commonly held assumption about income (and spending) in USD having a global correlation with quality of life has ceased to be true for over a decade or two by now.

However, the lack of a strong correlation between improvements in quality of life for upper-middle and middle class in India and income as measured in USD is only one example of a much larger and global phenomenon. The rest of this post will talk about how that change has affected formerly communist east-European countries.. from the Czech Republic to Russia.

So let me begin with a few observations I made between 1995-2002. During that time-span, and probably a few years prior to it, USA and the west was the destination of choice for many people from formerly communist east-European countries. At that time, many people from those countries (from academics and scientists to criminals and pretty women) wanted to move to USA or somewhere else in the west. Indeed, many of those who came over prior to 2000-2002 ended up staying for good. But then something started to change..

I first noticed this change because of a sharp and persistent drop in number of academics and scientists from those countries who were interested in moving to USA starting around 2001-2002. Prior to that, the majority of academics and scientists from those countries who were visiting the USA very frequently expressed a strong interest in moving there for good- and many followed up on it. However by 2002-2003 there was a sharp and persistent drop (among them) in the degree of interest in moving west. Curiously, there was no significant change in the numbers of those who visited USA (from those countries) for a few months to a couple of years.

So I started inquiring about the reasons behind this change. Curiously, I kept on getting different versions of the same answer. Basically, they all told me that the differences in quality of life and living standards between those countries and USA had now shrunk down to a point where it was simply not worth immigrating to USA unless there was a very specific reason to do so. I was initially puzzled by this explanation since it was clear that they were making significantly less in those countries- as measured in USD. Some internet research revealed that the cost of many goods and services in those countries was significantly lower than their equivalents in USA- when priced in USD.

The difference in cost (as measured in USD) was most obvious in areas such as housing, education, food, drink, entertainment and healthcare. Furthermore, the quality of these less expensive goods and services was functionally equivalent to their equivalents in USA. It also became clear that a person with a reasonable job in those countries could actually live a far more stable and financially secure lifestyle than somebody in USA- even prior to 2008. It was this realization which first led me to openly question comparing incomes across countries in USD or other western currencies.

The increasing lack of interest by people from those countries in moving to USA the rest of the west on a long-term basis is also obvious in other ways. Some of you might recall that the phenomenon of mail order brides and similar marriage arrangements by women from those countries was a well-known trope in popular culture during the 1990s and early 2000s. Today.. you don’t hear much about that sort of stuff anymore. Similarly, rich people from those countries no longer see USA as a highly regarded tourist destination.

So why did this change occur and why was it so fast? Well.. in my opinion, many formerly communist east-European countries already had most of the ingredients (levels of education, infrastructure, natural resources) necessary to provide a high standard of living for their people. Once the burden of ideological top-down control on them was lifted after 1989, it took most of those countries a decade or so to catch up with the west- as far as actual quality of life was concerned. Widespread international travel and ubiquitous internet access also showed a lot of them that difference in quality of life in USA vs their countries was simply not enough to make moving to the former worth it.

Today, only people from some the poorest sub-regions in those countries still harbor any worthwhile interest in moving to the USA- and even that is changing. To summarize, many formerly communist east-European countries are now good examples of places with a high standard of living but with supposedly lower income- as measured in USD. In the upcoming post of this series, I will write about how the living standard in east-Asian countries is also now no longer connected to average local income as measured in USD.

What do you think? Comments?

  1. Genius
    March 4, 2017 at 12:02 pm

    That’s why You should compare standard of living between different countries using purchasing power parity.
    It’s obvious to me that US has been in economic decline since 2000, and over the next century, economic power will slowly shift from America and Europe to Asia.

  2. Anonymous
    March 4, 2017 at 12:29 pm

    Part of the reason is that several East European countries acceded into the European Union in 2004. From then on it was easy to live and work in Western Europe without needing a visa and without any change in nationality. There was less incentive to move the USA when a move to the UK, Germany or Scandinavia was so conveniently available.

    Not really.. What percentage of the population of larger east-European countries work and lives abroad? Less than 5 percent?

    • webej
      March 6, 2017 at 12:19 pm

      Anonymous is right. But the East Europeans are not immigrating to Western countries, they go there to supplement their income. There are mafia type gangs active (some steal trucks out of harbors), a lot of auto theft, social benefits frauds, a lot of prostitutes. There are even more Poles and Romanians who export cheap second hand stuff from the West back home, and who work here underground (without permits), construction, odd jobs, day labor as stevedores, construction, etc. Even legal temp agencies with Poles in super markets, etc. Also large numbers in seasonal (and permanent) agricultural work, often with room/board included.

      All of this enterprise is predicated on two things: [1] profit is mainly in the exchange rate difference between poor pay in the west and how it spends in the east; [2] it is temporary, with a lot of travel between the home country and the west. These people are not immigrants looking for a better life, but migrants or seasonal/temporary workers looking for gigs. The USA is too far for gigs and taking the plane precludes frequent cheap trips home, car theft, second hand stuff, etc. And in the USA criminality is riskier (more competition and harder time) for people with a gig mentality.

      The same is true to some extent of the Islamic migrants to Europe. In contrast to the immigration to the USA, most of the migrants came with the thought that it was a temporary arrangement, both on the part of the host country as the laborers. For many in the older generation, who often sent a lot of money to family back home, the real dream was saving enough money to build a house and settle in their home village, but as the years stretch to decades, they don’t fit in there anymore, the home country has changed, the children don’t want to go back, their health has given out, etc. On the other hand, tens of thousands of migrant laborers did build the house or business or farm and eventually went back home, so the dream is not completely imaginary.

  3. March 7, 2017 at 10:45 am

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