A study of the cost of living in Labrador

Abstract

The primary purpose of this study is to determine the difference in the cost of living between Labrador and St. John's. While constructing a comparative cost of living index for Labrador, it was found that the presence of certain methodological problems in the application of cost of living index number theory required that the results be interpreted with some degree of caution. -- The methodology used is a modified Laspeyres formulation and is similar to the one used by Statistics Canada in measuring the cost of living in remote northern areas of Canada. -- Difficulties arise because income expenditure patterns are not available for northern communities. As a result, the study had to make use of a St. John's expenditure survey. To the extent that purchasing patterns for St. John's and Labrador communities are similar, the index constructed provides an accurate comparison of prices. If patterns of consumption differ, as they are assumed to do, difficulties arise because we cannot be sure if they differ because of different preference patterns, because of different relative prices, or both. Moreover, the inherent biases in using index numbers will also tend to overstate the true differential between Labrador and St. John's prices. -- While the index numbers indicate that the cost of living is approximately 10-12 per cent higher in Labrador than St. John's, the inherent unresolved theoretical problems in index number theory requires that caution be used in interpreting the overall results of the study.