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Purchase power parity and some possible glitches when you consider lawyer compensation

Law departments that have lawyers stationed all over the world (See my post of April 17, 2007 about J&J with its 35 lawyer locations; Oct. 19, 2005 on Goldman Sachs and its 90 lawyers out of the US.) sometimes look at the compensation of their lawyers in terms of relative purchasing power parity (See my post of Oct. 10, 2005 on PPP.). In some situations the application of that method has glitches.

The Fin. Times, Jan. 29, 2007 at 15, points out some potential drawbacks of PPP. One is the likely difference between the consumption profile of an average lawyer and that represented by the basket of “standard” consumer goods from which PPP rates are derived. The costs of lawyer-friendly up-market goods in less-developed countries can be extremely high. A second anomaly is that PPP conversions make it appear that the salaries of lawyers in countries with lower costs of labor look much more enticing. The third concern is that most lawyers in foreign countries work in large cities, whereas the PPP calculations are based on the average costs throughout those countries. Caveat payor.

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