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Business, Numbers

Are You Getting Your Dollar’s Worth Where You Live?

 

The 2016 Rio Games are now history! For those of you who have been more than preoccupied watching the various sporting events over the past two weeks, you can now step away from your television or other electronic devices. I enjoyed watching a few of the events, however, I didn’t have the luxury of tuning in 24-7, and resorted to a daily check for USA medal counts. My good news is that I did manage to whittle down some of my reading assignments over the past two weeks.

One of those overdue assignments that I was able to review is Real Personal Income for States and Metropolitan Areas, 2014. This document was prepared by the Bureau of Economic Analysis (BEA), a division of the U.S. Department of Commerce. It shows adjustments to personal income data for differences in the cost of living across states and metro areas. These data may be of interest to you if you travel frequently outside of the area and region that you live or work, or if you are considering moving to another region of the country.

An illustrative example of the relative value of $100 is provided in this figure:

$100 Map-state-01_TaxFoundationpng

As Alan Cole writes for the Tax Foundation: This map shows the real value of $100 in each state. Prices for the same goods are often much cheaper in states like Missouri or Ohio than they are in states like New York or California. As a result, the same amount of cash can buy you comparatively more in a low-price state than in a high-price state.

It probably comes as no surprise that $100 buys the least in our nation’s capital, the District of Columbia ($84.67) followed by Hawaii ($85.62), New York ($86.43), New Jersey ($87.34) and California $88.97). Similarly, if there the big winner for purchasing power parity is the State of Mississippi, where that same $100 grows to $115.34. Other states where your dollar is more valuable are Arkansas ($114.29), Alabama ($113.90), and South Dakota ($113.64).

The States of Illinois and Florida come the closest to straddling the $100 price parity line. Other important factors that influence the above numbers and are often neglected in many salary analyses are the rate of local and state taxes and the costs of transportation, rent and housing, and education.

Why are these statistical data points important? These data can be used to help businesses and households make informed decisions – from deciding where to move for a new job, locate a new office or add a manufacturing site, or help economic development offices shape regional marketing plans and economic performances across regions.

BEA defines regional price parities (RPP) as regional price levels expressed as a percentage of the overall national price level for a given year. The price level is determined by the average prices paid by consumers for the mix of goods and services consumed in each region.

Across the U.S., there are differences in the cost of everything from medical care to housing. In some states, such as Hawaii and New York, goods and services cost more. In others, such as South Dakota and Mississippi, they cost less. Just as adjusting U.S. economic growth for inflation (real GDP) is critical for comparing the high inflation years of the early 1980s to the low inflation years of the late 1990s, adjusting state personal incomes (real state personal income) for differences in the cost of living across states is important in comparing incomes, and the purchasing power of that income across states.

Cole goes on to say: Regional price differences are strikingly large; real purchasing power is 36 percent greater in Mississippi than it is in the District of Columbia. In other words, by this measure, if you have $50,000 in after-tax income in Mississippi, you would have to have after-tax earnings of $68,000 in the District of Columbia just to afford the same overall standard of living.

Why is this important to business and STEM? For starters I am frequently asked by students and others where can they get the most bang for their future hard earned dollars? Rather than relying on my own experiences or anecdotal information, I can now refer them to BEA’s data.

Second, now or in the future, you may be tasked to make decisions about investments for your employer or for yourself. Being aware of the purchasing power of a dollar at the region level is an important part of any business decision to enter a new market or exit and existing one.

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About Vi Brown

Vi is principal and CEO of Prophecy Consulting Group, LLC, an Arizona firm that provides business and engineering services to private and public clients. Prior to establishing her consulting practice in 2001, Vi worked with Motorola, Maricopa County Government, Pacific Gas & Electric, CH2M Hill, and Procter & Gamble. As an adjunct faculty member, Vi teaches undergraduate calculus classes and graduate level environmental courses. She is also a professional speaker.

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