Special Topics Workshop on the Post Adjustment System Vienna, 23 January 2009

Q: What is post adjustment? A: Post adjustment is an amount paid in addition to net base salary, to ensure that no matter where United Nations common system staff work, their net remuneration has a purchasing power equivalent to that at the base of the system, New York. Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System UN Salary structure Staff assessment Net salary Post adjustment Gross base salary Net base salary Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Calculation of PA amount (P-4/step VI with Dependant, January 2009) PA classification: Multiplier = 49.5 Post Adjustment = 49.5% of Net base salary = 0.495 * 76,823 = 38,027 (US$) Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Salary structure Austria January 2009 P-4 step 6 (D), US$ Base salary (Gross): 100,475 Staff Assessment: 23,652 (internal taxation) Post Adjustment: 38,027 (D status) Net remuneration: 100,475-23,652+38,027=114,850 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

PA Classification (as of 14 Jan. 2009) Exchange Rate Index Multiplier Threshold dependant Threshold single As of Geneva 1.122 179.0 73.2 21 23 Apr. 2006 London 0.684 154.0 36.0 27 30 Madrid 0.756 154.5 44.1 19 Nov. 2008 Montreal 1.219 143.4 32.8 17 Jul. 2001 New York 1.000 170.9 68.5 29 32 Aug. 2008 Rome 161.1 50.1 20 22 Paris 162.0 52.9 Jan. 2004 Vienna 160.0 49.5 Washington 148.3 43.7 25 28 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Q: What is the Post Adjustment Index? A: The cost-of-living difference between two locations can be expressed in the form of an index: Cost-of-living (A)/Cost-of-living (B) The PAI is a measurement of the living costs of staff at any given duty station compared to that at the base (New York) For example: Vienna PAI = 160.0 at a particular exchange rate. This means that Vienna is 60.0% more expensive than New York in September 1995. Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Q: What is Cost-of-living Index? The cost-of-living index for Britain, based on Big Mac prices in July 2008: 4.57 / 3.57 = 1.2801 Britain is 28% more expensive than US! According to ICSC this index, in July 2008, was 10.8% (London was 10.8% more expensive than New York) Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Q: Where to find the latest Post Adjustment classification A: The ICSC WEB-site: http://ICSC.UN.ORG Post Adjustment reports are published at the beginning of each month Web-site version and hard copy (PAC review) Hard copy is sent to HQs of all organizations Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Use of weights in Cost-of-Living measurements Weights represent: Importance attached to the price ratio of each item Relative importance of an item can be expressed as: Quantities consumed, or Expenditure on the item in a given currency Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Use of weights in Cost-of-Living measurements continued PA index calculations are based on weighted geometric averaging Geometric average of two parameters (P1, P2) is calculated according to the formula: For three parameters the formula would be: References to the use of geometric averaging: - ICSC/ACPAQ/23/R7/Add.2 “Selection of Outlets”, para. 9 “In averaging prices and calculating the in-area component of the post adjustment index, the geometric average is used . The use of a geometric average to calculate in-area relativity's has a moderating effect on extreme values and assumes that some substitution in quantities among high and relatively lower price items is taking place .” - ICSC/ACPAQ/19/R7 “AN EVALUATION OF THE MODIFIED WALSH FORMULA”, para. 15 “The use of a geometric average to calculate in-area relativities assumes that some substitution in quantities among high and relatively lower price items is taking place. No substitution is assumed in the housing, medical insurance, pension contribution and out-ofarea components . The modified Walsh formula is, in this sense, robust as it incorporates components with different elasticities, thereby facilitating as closely as possible, the measurement of the cost-of-living phenomena in a duty station relative to the base of the system, New York .” ICSC/ACPAQ/13/R2 various citations in relation to specific calculations ICSC/ACPAQ/11/R2 “REVIEW OF THE COST-OF-LIVING METHODOLOGY”, para 40.b “The price comparison and the price ratio calculation are made for sub-items (and sometimes items) with similar specifications in New York and at the duty station. In order to calculate price ratios below the minimum level for which weights are available, a simple geometric average is used. A geometric average is used because the inverse of the average is equal to the average of the inverse ratios, and hence, the same price ratios can be used in the calculation of the taspeyres and the Paasche indices.” For weighted geometric average: Or, alternatively, Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Use of weights in Cost-of-Living Measurements Item Price Ratio Weight 2007 2008 (2)/(1) 2007 $ (1) (2) (3) (4) (3) X (4) Milk 0.25 0.38 1.52 20 30.40 Meat 0.87 1.00 1.15 Bread 0.50 0.90 1.80 ∑(sum) 100 Weighted average ratio What happens when some of the weight for Bread is moved to Meat? 40 60 45.98 68.97 20 40 36.00 72.00 135.366 148.377 1.35366 1.48377 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Calculation of the Post Adjustment Index Major Steps Expenditure weights are established using Common weights and Household expenditures survey data. Price ratios relative to New York are calculated. Price ratios are aggregated using expenditure weights. The result is the Cost-of-Living index or Walsh index. Post Adjustment index = Walsh index * Rebasing factor Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Prices for 323 Items (Goods & Services) Household Expenditure Survey every 5 years (HQ) Common Weights Household Expenditure Survey (non HQ) Housing Survey Housing Index Rent Data for New York MI Index PC Index O-A Index Aggregation of Indices Duty Station Prices for 323 Items (Goods & Services) Price Ratios Walsh Index New York Prices Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Walsh Index Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Calculation of PAI Walsh Index is a multilateral index reflecting a comparison of prices Rebasing factor is the New York PAI at the time of the price collection As of now the Rebasing factor equals to NY June 2005 PAI = 152.602 WALSH INDEX = 0.9718 REBASING FACTOR = 152.602 0.9718 X 152.602 = 148.30 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Calculation of PAI Expenditure Group % Weight Index   Total In-Area 59.18 111.5 Food and non-alcoholic beverages 8.50 130.6 Alcoholic beverages and tobacco 1.07 92.0 Clothing and footwear 1.82 142.3 Housing, water, electricity, gas and fuels 22.57 77.2 Furniture, household equipment and routine maintenance of the house 4.22 125.3 Health 2.70 119.3 Transport 6.89 151.4 Communication 1.85 156.4 Recreation and culture 4.12 142.6 Education 0.97 84.1 Restaurants and hotels 2.25 129.4 Miscellaneous goods and services 2.23 128.3 Medical Insurance 6.54 107.2 Pension Contribution 10.77 116.6 Out-Of-Area 23.51 117.8 Total WALSH 100.00 113.3 Values for Vienna as of January 2009 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Rebasing Factor PAI for New York at the beginning of the survey round (currently June 2005) Converts the Walsh Index into a PAI Determines salary levels worldwide Changes over time through consolidation Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Walsh Index vs. PAI Walsh index Walsh index of 0.95 for a duty station means that the cost of living in the duty station is 5% less than that in New York in June 2005 Walsh index of 1.25 for a duty station means that the cost of living in the duty station is 25% higher than that in New York Post Adjustment index Post Adjustment index of 135 means that staff at the duty station are paid an additional 35% of the base salary to compensate for the cost of living Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Components of the PA Index Major Components: In-Area ~40-57% Out-of-area ~25-40% Pension contribution ~10-12% Medical insurance ~8% Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Components of the PA Index The In-Area component has a 3-level internal structure Major Groups Subgroups Basic headings Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Components of the PA Index (In-Area major groups) Food and non-alcoholic beverages Alcoholic beverage and tobacco Clothing and footwear Housing, water, electricity, gas and fuels Furniture, household equipment etc. Health Transport Communications Recreation and culture Education Restaurants and hotels Miscellaneous goods and services Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Components of the PA Index (Pension contribution) Represents staff member’s share of pension contribution Calculated for P4 step 6 with dependents Reviewed annually Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Components of the PA Index (Medical insurance) Average staff member’s share of medical premium Calculated for P4 step 6 with dependents Reviewed annually Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Components of the PA Index (Out-of-Area component) Represents purchases made outside the country of duty station Calculated as an average of U.S. dollar based inflation in 21 selected countries Is a common factor for all duty stations Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Out-of-Area component Reflects expenditures incurred outside the country of the duty station Examples: Items imported directly by staff due to limitations of the local market (e.g. food, clothing and footwear) Expense of private travel outside the country of duty station Fees for education Support of dependents abroad Upkeep of a dwelling in the home country Two parts: OA weight OA Index Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Out-of-Area Index Average of US dollar-based inflation in 21 selected countries Country Group number Effective weight USA 1 9.0909 Italy 2 France 3 Belgium 4 3.0303 Netherlands Luxembourg Denmark 5 2.2727 Sweden Norway Finland UK 6 4.5455 Ireland Germany 7 Austria Switzerland 8 Japan 9 Hong Kong 10 Singapore Portugal 11 Spain Greece Total   100.00 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Steps in Calculating OA Index Dollarize inflation in each country Calculate average for each of 11 groups Calculate average across groups for the month Nine-month moving average Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System OA Weight Set by the Commission Trade-off: stability vs. precision Neither completely stable nor completely precise Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System OA Weight – Group I Time period OA weights applied Effective date Before 1986 Actual OA expenditure 1986 – 1990 Actual weight OA + NCC 1 Jan 1987 1990 round OA weight fixed at 10% 1989 1995 round Actual OA weight + NCC 1 Jan 1996 2000 round max {Actual OA weight, 20%NR} + NCC 1 Mar 1997 2005 round Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Evolution of OA Index in Swiss Franc Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Evolution of OA Index in Euro Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Updating Post Adjustment Indexes GOAL: Maintain equivalence of purchasing power of salaries over time METHOD: By taking into account: Local and dollar-based inflation Exchange rate movements Changes in medical insurance Changes in pension contribution Housing survey data = Today Tomorrow Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Updating Post Adjustment Indexes Net Take-Home Pay (NTP) = Net remuneration – Pension contribution Duty station PAI Multiplier P4, step VI base salary PA Net Remuneration (US$) Vienna 168.9 60.4 76,823 46,401 123,224 London 148.6 43.7 33,572 110,395 Geneva 188.1 84.7 65,069 141,892 New York 171.1 68.5 52,624 129,447 P4 step VI, D Net Salary level and PAI / multipliers– as of 1 January 2009 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Updating Post Adjustment Indexes Procedures for reviewing PAIs with regard to exchange rate fluctuations are different for the two groups of duty stations. Group I Group II Aim: To stabilize NTP in local currency Aim: To stabilize NTP in US $ Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Updating Post Adjustment Indexes (general framework) P/P Survey Result Group I Group II If Low P/P result Group I or Group II Gap Closure Measure 0.5% rule 1 Month Rule 5% rule 10 Points Rule 12 Month Rule Post Adjustment Multiplier Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Updating Post Adjustment Indices (0.5% rule) Multipliers for Group 1 duty stations are reviewed on a monthly basis for exchange rate movement. Take-home pay in local currency is maintained within a range of +/- 0.5% of established pay level. Aim: To stabilize salaries in local currency Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Updating Post Adjustment Indices (0.5% rule - Vienna) Implementation Date Exch. Rate Salary (local) Multiplier NTP (local) 2008 Jan 0.686 7080.84 68.2 65.0 6428.76 6430.85 Feb 0.676 7071.32 67.2 6430.15 Mar 0.661 7057.10 70.7 6432.20 Apr 0.634 7031.49 77.3 6431.25 May 0.642 7039.08 75.3 6432.07 6512.40 Jun 0.643 7122.13 77.0 6510.47 Jul 0.636 7115.49 78.8 6511.22 Aug 0.672 7151.49 70.1 6472.27 Sept 0.718 7197.97 60.2 6470.61 Oct 0.742 7222.22 55.6 6473.36 Nov 0.773 7253.54 50.0 6472.99 Dec 0.772 7252.53 50.2 6474.28 2009 Jan 0.699 7178.77 64.2 60.4 6474.30 6471.54 Consolidation 1.97% 5% rule Pension contribution +62.13 US$ Consolidation 2.33% Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Updating Post Adjustment Indexes (5%, 12-month rule, Group I) Adjustment for inflation is made after: A full 5% movement in the cost of living OR 12 months have elapsed from the reference date, whichever comes first! Reference date: Date of last change in net take-home pay in local currency Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Updating Post Adjustment Indexes (5%, 12-month rule, latest changes at HQ duty stations) When Prior PAI Prior multiplier Reason for change Resulting PAI Resulting multiplier Geneva Jul. 2008 189.0 87.6 5% rule 192.0 92.0 London Mar. 2008 182.4 74.4 183.5 83.5 Madrid 162.8 60.8 166.3 66.3 Montreal Jun. 2008 160.6 59.3 164.6 64.6 New York Aug. 2008 169.3 61.8 172.4 72.4 Rome Apr. 2008 173.8 73.2 12-month rule 180.0 80.0 Paris May 2008 182.3 83.1 181.4 81.4 Vienna 176.3 77.3 177.3 Washington 146.3 40.2 147.0 47.0 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Factors Influencing Evolution of NTP (Reference Period) Cost-of-living surveys 12-month and 5% reviews Changes in methodology Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Factors Influencing Evolution of NTP (Exchange Rates) Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Factors Influencing Evolution of NTP (Exchange Rates) Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Factors Influencing Evolution of NTP (Exchange Rates) Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Factors Influencing Evolution of NTP (Exchange Rates) Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Evolution of CPIs Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Special-Topics Workshop on the Post Adjustment System Evolution of Rents Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Evolution of Pension Contribution Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Evolution of Medical Insurance Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Evolution of Out-of-Area Index Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Out-of-area weight (results of simulations) PAI, Dec-2008, original and modified out-of-area weights Redistribution to in-area excluding housing Current Scenario 1 Scenario 2 OA weight PAI index Geneva 23.06 175.65 10 177.29 6 177.81 London 23.28 162.74 159.68 158.77 Madrid 23.58 156.36 154.48 153.93 Montreal 23.49 146.01 141.33 139.94 New York 23.17 175.39 173.71 173.20 Paris 23.42 164.05 163.76 163.67 Rome 163.15 162.45 162.23 Vienna 23.51 161.62 161.80 161.87 Washington 23.62 152.27 149.55 148.74 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Out-of-area weight (results of simulations) PAI, Dec-2008, original and modified out-of-area weights Redistribution to in-area including housing Current Scenario 1 Scenario 2 OA weight PAI index Geneva 23.06 175.65 10 175.23 6 175.11 London 23.28 162.74 159.68 158.77 Madrid 23.58 156.36 151.78 150.44 Montreal 23.49 146.01 139.26 137.27 New York 23.17 175.39 173.86 173.39 Paris 23.42 164.05 161.04 160.14 Rome 163.15 160.06 159.15 Vienna 23.51 161.62 157.90 156.78 Washington 23.62 152.27 146.74 145.11 Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System

Latest developments for 2010 survey round Review of items and specifications New PAI structure with a reduced number of basic headings New basket of 26 countries for Out-of-Area Index (including some Group II duty stations) Re-design of the survey questionnaire Real-time comparisons with New York Increasing use of the Internet as a source of price data Cooperation with other international agencies involved in cost- of-living measurement Vienna, 23 January 2009 Special-Topics Workshop on the Post Adjustment System