estimating real income and comparing to Int. Dollar

Asked: 16 Feb 2020 | 976

I was doing an article on real income of health workers in Ethiopia. I have average annual salary of 14 years. so, I want to see whether the salary increase over year or not compared to GDP per capita. I decided to use the GDP per capita in 2011 constant international dollar. I have the data now. 1. average annual nominal salary. 2. consumer price index for Ethiopia 3. international dollar conversion factor 4. GDP per capita in 2011 constant base year in international dollar. using those information I used the following steps to calculate the real income over the years. I change the average annual salary of the 14 years to 2011 price using CPI. then, I changed the 2011 Ethiopian currency to international dollar using 2011 conversion factor for all the years. then I compared this income to GDP per capita in 2011 constant base year in international dollar. please help me with the procedure I took. Specially, I want a confirmation on if using constant conversion factor of 2011 international dollar is right for all the 14 years after changing it to 2011 constant price value? If there is more thing I need to consider, I am happy to incorporate more comments. Thank you so much for your help.

Costing

Expert Replies:

Hugo Turner

Lecturer | United Kingdom | Replied: 21 Feb 2020 at 19:09

Many thanks for the question.

I believe it is valid to adjust the costs using constant conversion factor for international dollars as long as the costs have all been adjusted for inflation to that year first.

I would consider using GDP deflators instead of CPI.

Some further information on adjusting for inflation and I$ can be found in this paper: Adjusting for Inflation and Currency Changes Within Health Economic Studies doi.org/10.1016/j.jval.2019.03.021).