Written By: Carissa Gurgul
Different geographical locations often vary in total income of employees. Not only straight-forward earnings, but the cost of living, taxes, and much more comes into play. A large component (approximately 16%) allotting for income variations is education, as employees with advanced degrees make an average of $50,000 more every year than those who are uneducated ($73,000 vs. $23,000). Age (income tends to increase in tandem), race/ethnicity, sex, and occupation account for ~20% of income variation, while location accounts for only 1.5%. When comparing median incomes, the lowest is $26,000 in Sebring, Florida, while the highest is $65,000 in San Jose, Sunnyvale, and Santa Clara, California. On average, employees living in the 30 locations with the highest median incomes make approximately 20% more than the median worker of the United States as a whole, and 37% more than those who live in the 30 locations with the lowest median incomes in the country. Very few occupations offer the same income amongst different locations, exemplified by the $85,400 yearly difference in computer software developer income between Lubbock, Texas and Santa Cruz-Watsonville, California. This great disparity in income may be a result of variation in demand or required skill sets within different areas. For example, there may be a greater demand and increased skills set for active police officers within large metropolitan areas, so they may be offered higher salaries in such locations rather than in more rural areas.
Some places, such as San Francisco, offer higher wages compared to other locations, but the cost of living is very high due to land-use restrictions. These high costs limit the people who can access the higher wages, in turn limiting economic development and creating a large disparity in income between locations. In this way, making $100,000 in San Francisco may be equivalent to making $50,000 in, say, Bay City, Michigan, where the cost of living is substantially lower. Therefore, the wage required to live comfortably would also be substantially lower, resulting in wage gaps amongst these two places (and many others in similar situations). On average, $1,000 more in an annual salary would correlate with a 1% higher cost of living in that location. In a similar manner, locations with higher wages also often have higher taxes, as wages often correlate with and are adjusted largely in an effort to offset the overall cost of living. In some cases, there are unadjusted incomes in relation to the cost of living (where we see high costs of living and medium incomes), mostly as a result of desired amenities within the area in which people are willing to accept in place of a higher wage.
The following link offers an interactive chart to determine median salaries in desired locations, adjusted by both age and cost of living, where you can see firsthand the variations amongst different locations as described above http://www.hamiltonproject.org/charts/where_work_pays_interactive
Bauer, Lauren, et al. “Where Work Pays: How Does Where You Live Matter for Your Earnings?” Brookings, Brookings, 10 July 2018, https://www.brookings.edu/research/where-work-pays-how-does-where-you-live-matter-for-your-earnings/?utm_campaign=Brookings Brief&utm_source=hs_email&utm_medium=email&utm_content=64391059.
Smith, Sergeant Betsy Branter. “How Much Will I Get Paid…Really.” The History and Importance of Police Training – PoliceLink, policelink.monster.com/education/articles/122891-how-much-will-i-get-paidreally.