Economist Writing Every Day

Income varies a lot across the US. So does the cost of living. Does it mostly wash out when you adjust incomes for the costs of living? No, not even close. Apples-to-apples comparisons are always hard, but it’s still worth making comparisons.

Let’s use some data that Ryan Radia put together that I really like, for several reasons. He uses the 100 largest MSAs — these comprise about 2/3 of the US population. He uses median income, so outliers shouldn’t effect the income data. He uses median family income, since the more common median household income is, in my opinion, very difficult to interpret (5 college students living together are a household, and so is one elderly person living alone). And Ryan also limits it to non-elderly, married couples, and then separates the data by the employment status of each member of the couple.

As an illustration, let’s use the data for married couples with only one spouse working full-time (I have played around with the data for other working statuses, and the results are similar). Before adjusting for the cost of living, here are the top MSAs with the highest median incomes:

1. San Jose, CA: $169,000
2. San Francisco: $140,000
3. Bridgeport–Stamford, CT: $130,000
4. Seattle: $130,000
5. Boston: $129,000
6. Washington, DC: $123,000
7. Hartford, CT: $110,000
8. Oxnard–Thousand Oaks, CA: $107,390
9. Austin: $105,420
10. New York: $105,000

This list is probably not too surprising. But your initial reaction might be: these are all high cost of living cities! And you are correct. Using the BEA’s Regional Price Parities, all of these MSAs are more expensive than the US average (though perhaps surprisingly, Austin is almost right at the average).

What happens we adjust for cost of living using the RPP index? Here’s the new list:

1. San Jose, CA: $151,374
2. Bridgeport–Stamford: $122,873
3. Boston: $117,605
4. San Francisco: $116,830
5. Seattle: $113,470
6. Washington, DC: $110,473
7. Hartford: $108,148
8. Austin: $105,375
9. Provo, UT: $104,337
10. Pittsburgh: $103,727

Notice that this list is… almost the same! The income numbers decline slightly, as they should, but 8 of the 10 cities are still in the top 10. Oxnard-Thousand Oaks drops to 25th place, and New York City goes all the way down to 41st place (out of 100). Provo and Pittsburgh do move up significantly (from 18th and 23rd), being cities with pretty high incomes, but relatively low costs of living (about 95-96% of the national average). But for the most part, these lists are almost identical.

What about at the low end? Once again using married, non-elderly couples with just one spouse working full-time, here is the Bottom 10 (among the 100 largest MSAs):

91. Scranton/Wilkes-Barre, PA: $72,000
92. Wichita, KS: $71,700
93. Greensboro, NC: $71,000
94. Knoxville, TN: $70,000
95. Bakersfield, CA: $70,000
96. Columbia, SC $69,450
97. Jackson, MS $68,010
98. Lakeland–Winter Haven, FL: $66,400
99. McAllen, TX: $55,600
100. El Paso, TX: $52,800

And when we use the RPP index to adjust for cost of living:

91. Spokane, WA: $75,981
92. Cape Coral–Fort Myers, FL: $75,026
93. Deltona–Daytona Beach, FL: $74,612
94. Columbia, SC $74,422
95. Fresno, CA: $73,161
96. Bakersfield, CA: $69,352
97. Lakeland–Winter Haven, FL: $69,045
98. Miami, FL: $68,231
99. McAllen, TX: $63,357
100. El Paso, TX $56,693

There’s a little more shake-up here, with only 5 remaining in the bottom 10, but that’s a little deceptive, as 4 MSAs have just barely moved out of the bottom 10 after the adjustment (only Wichita moves up significantly, climbing out of the bottom 20). El Paso, McAllen, and Lakeland-Winter Haven are still right at the bottom, with the addition of one perhaps surprising new entrant: Miami.

As the ninth-largest MSA by population, Miami stands out because it has a relatively low median income ($75,000 by this measure), combined with the 10th highest cost of living among these 100 MSAs. Putting these together, Miami falls 12 spots on the ranking of median income.

That leads us to one more question: which cities are the biggest movers in rank between the unadjuated and RPP-adjusted data. Here are the biggest “losers,” which fell in rank (and how many spots they fell):

1. Honolulu: -41
2. Los Angeles: -39
3. San Diego: -38
4. New York: -31
5. Riverside, CA: -22
6. Stockton, CA: -19
7. Chicago: -18
8. Dallas: -18
9. Oxnard–Thousand Oaks, CA: -17
10. Denver: -17

And here are the biggest “gainers,” those that move up in rank (and thus, their nominal median income understates how rich they are):

1. Chattanooga, TN: +21
2. Augusta, GA: +20
3. Memphis, TN: +17
4. Toledo, OH: +15
5. Ogden, UT: +14
6. Kansas City, MO: +14
7. Pittsburgh, PA: +13
8. Cleveland, OH: +13
9. Wichita, KS: +13
10. Akron, OH: +12