Most companies who use these lists are placing highly-skilled professionals or managers who are likely to earn more than the average local salary. This important factor plays a huge role in how these lists are made and, as a result, which cities are bumped higher up the ranking.
Exact criteria vary, but there are some broad similarities in compiling these lists. Researchers on the ground in hundreds of cities collect prices for various items and services that make up a “basket of goods”. This can include groceries, haircuts, cinema tickets, clothing, electronics and furniture.
Some, but not all, firms will also include rent or car costs. (That’s why a place like Singapore shows up so frequently on these lists – owning a car is very expensive there, so it bumps it up the list considerably.) Other factors, such as exchange rates and tax rates, can also play a role.
Then to rank these baskets of goods against each other, they use a standard measure – the EIU, for example, converts all currencies into US dollars and compares each basket to New York City. How much cheaper or more expensive that basket is determines the city’s place on the list.
“It is a sort of a tool to foreign companies who have expats in different locations,” says Robert Wood, principal economist at the EIU. “It is a tool to help them in terms of salaries for expats.”
In other words, they’re the most expensive cities in the world, but for a specific group of people.