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How Do Cost of Living Differences Affect Real Earnings?

How Do Cost of Living Differences Affect Real Earnings?

Opting to relocate for a higher-paying job might seem advantageous at first glance. However, real wages, when adjusted for the cost of living, might not stretch as far as you might think, depending on where you relocate to. If you are thinking about taking a new job in a different location, you should consider purchasing power in your possible new home, and that’s where COLI can help.

Fortunately, the Council for Community and Economic Research (C2ER) provides a Cost of Living Index adjustment for Median Household Incomes (MHI) as reported by the U.S. Census Bureau, covering an extensive array of 3,111 counties. This adjustment provides you with a more accurate look at how far your paycheck will take you, compared to your current wage and location.

For instance, let’s compare the median household incomes for two places: Wyandotte County, Kansas (the county for Kansas City) and Manhattan, New York City (not Kansas.) Since Wyandotte County’s median household income is $58,701 compared to Manhattan’s $95,514, it looks like New Yorkers earn a lot more than Kansas City residents. But after accounting for cost of living, residents of the bustling midwestern hub who earn the abovementioned median income earn an equivalent of $71,127, while New Yorkers earn only $33,739! That’s a big bite out of living in the Big Apple.

With a COLI adjusted median household income, or MHI, Wyandotte County surges past New York County in real income. Based on rankings for unadjusted versus adjusted income, Wyandotte County increases in rank by 1,086 (to what) which means that, in real dollars, your money goes much further in Wyandotte County compared to other areas. Meanwhile, New York County, once ranked near the top with the 148th highest median income, plummets to 3,109 after adjusting for cost of living, close to the bottom of the rankings. This means that, although nominally New Yorkers are among the highest-paid workers in the country, when adjusting for cost of living, they are actually the third-lowest paid compared to other areas of the country.

Looking at the map below, you can see what areas of the country had the greatest increases and decreases in income after adjusting for cost of living. Broadly, counties along the West Coast and in the Northeast exhibit a decline in ranking post-adjustment for CCOL, while counties situated in the South and Midwest demonstrate an increase in ranking.

Based on C2ER’s research, 26.93% or 838 of the 3111 counties measured experienced at least a 10% change in MHI after adjusting for CCOL. Discrepancies between nominal and real income carry implications for the purchasing power of each earned dollar. The table below presents the cities with the highest and lowest adjusted MHI.

This is crucial data for jobseekers and people looking to relocate. It can also influence public policy decision-making and aid in site selection for businesses. Obviously, cost of living is just one measure of people’s relocation decision-making. But having a clear-eyed look at how moving will impact your financial future, it is worthwhile checking out this index before making a moving decision.

For further details about county-level index and other COLI products, please visit the COLI products page.