Purchasing-power parity (PPP) and compensation of lawyers outside the home country

An item in the Economist, July 7, 2007 at 74, explains that prices of goods and services depend heavily on local inputs such as rent and wages. Those inputs tend to be lower in poor countries. “For this reason PPP is a better guide to currency misalignments between countries at a similar stage of development.”

To adjust compensation equitably among its lawyers along the lines of a PPP model, a law department should apply the methodology to lawyers who are working in countries that have a similar level of economic development (See my posts of Oct. 10, 2005 on the basic notion of purchasing-power parity; April 22, 2007 on some glitches in its application; and Dec. 31, 2006 on cost-of-living comparisons in the United States.). Otherwise, the results will be skewed to the disadvantage of lawyers based in poorer countries.

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