Thanks to Stack Overflow’s annual survey, we now have this gem (pun intended) of data:
Is this as absurd as it appears? Let’s take a closer look.
Yes, the cost of living in Eastern Europe is lower than in the US. No, it is not 4 times lower. Taking my current country of residence – Estonia – as an example, and using the all-encompassing Big Mac Index, we get the following:
- Big Mac cost, US: $4.79
- Big Mac cost, Estonia: $3.36
- Relative cost of living in Estonia vs. US: 70%. A far cry from the 27% implied by Ruby dev salaries.
What else should be taken into account? Taxes. Using the simplest situation of a single earner, the American IRS takes 28% from the $88K-183K tax bracket. Estonia has a flat tax rate of 20%. Assuming that the reported figures represent pre-tax income, things look slightly better for Estonian developers.
Another thing to consider is social tax: The Estonian government skims a whopping 33% off the top of an employee’s income. To be clear, the employee never sees or really has to think about this money – the employer sends it directly to the government, and this figure doesn’t play any part in salary negotiations etc. The employer simply knows that whatever salary s/he negotiates with the employee, the actual total costs of hiring the person will be 1/3 higher. My best understanding of the US system leads me to believe that employees there pay additional 6.2% + 1.45% in taxes to Social Security and Medicare, and matching taxes are paid by employers. Overall, then, an argument can be made that the invisible 33% social tax in Estonia buys the developer more of things like healthcare, education and other social services, for which a US developer would have to pay out of pocket. This may be partly true, but the situation becomes a lot less clear when one considers that US employers offer comprehensive health coverages, for employee and his/her family, as they frequently seem to do, at least at top-tier companies.
The tax situation is obviously far too complex to be analyzed exhaustively here, and individual variations in living expenses, taxation levels, employee benefits etc. can change the overall picture dramatically. However, I think we can reasonably safely make the generalized conclusion that the disparity in salary levels between North America, Western Europe (also included in the SO survey) and Eastern Europe does indeed reflect a gulf in living standards of developers world-wide. An optimistic final figure based on the above numbers might be 50%, as in “The consumer buying power of Estonian developers is at best 50% of that enjoyed by their American colleagues.”