<P> Cost of living is the cost of maintaining a certain standard of living . Changes in the cost of living over time are often operationalized in a cost of living index . Cost of living calculations are also used to compare the cost of maintaining a certain standard of living in different geographic areas . Differences in cost of living between locations can also be measured in terms of purchasing power parity rates . </P> <P> Employment contracts, pension benefits, and government entitlements such as Social Security can be tied to a cost - of - living index, typically to the consumer price index (CPI). A COLA adjusts salaries based on changes in a cost - of - living index . Salaries are typically adjusted annually . They may also be tied to a cost - of - living index that varies by geographic location if the employee moves . In this later case, the expatriate employee will likely see only the discretionary income part of their salary indexed by a differential CPI between the new and old employment locations, leaving the non-discretionary part of the salary (e.g., mortgage payments, insurance, car payments) unmodified . </P>

When considering cost-of-living differences between locations which type of costs stands out