Friday, January 23, 2015

How can you tell if wages are really low?

By Ranada Robinson, Research Manager.

In our economic research for clients, there are times when annual average wages are low compared to peer communities. A common question that arises is “are they really low or are they commensurate with the cost of living in that community?” So, one way we have explored this issue is to create a wage/cost of living differential so that we could compare the relative wage of a community (indexed to the combined average wage for all metros) to the relative cost of living index published by the Council for Community and Economic Research (C2ER)[1].

In the following table, the twenty metros with the most favorable differentials are presented.

Top 20 Metros with Favorable Cost/Wage Differentials, 2014
Source: Council for Community and Economic Research, EMSI
(Click Graphic to Enlarge)

These twenty metros are those that have the most competitive wages as a percentage of the national average annual wage across all metros compared to the relative cost of living. Texas metros are high on this list. Additionally, many of the southern metros, who are growing quickly, made this list—Austin, Atlanta, Nashville, Dallas, Raleigh, and Charlotte. As an example of why this differential is telling, the Bridgeport, Connecticut MSA, who ranks high on the list but is typically thought of as an expensive place to live, has a very high cost of living compared to the national average; however, its average annual wage is similarly much higher than the national average, so the average worker can handle the expense of living in this metro.

On the other end of the spectrum, the ten communities without as much buck for the bang are illustrated below.

Ten Metros with the Least Favorable Cost/Wage Differentials, 2014
Source: Council for Community and Economic Research, EMSI
(Click Graphic to Enlarge)

While New York and Honolulu may not be surprising, southern communities like Auburn, Alabama and Myrtle Beach, South Carolina are not as obvious. In these communities, the average wage is comparatively low even with their lower-than-average costs of living.

In the world of economic statistics, sometimes one indicator does not tell the whole story. However, looking at data points alongside each other is one of the many ways we here at Market Street are able to tell the true story of what’s going on in our client communities.

[1] For this analysis, the central urban area in the C2ER Cost of Living Index was chosen for comparison in instances where a metropolitan area has multiple urban areas represented.