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Cost of living and per capita incomes in U.S. cities

A recent post introduced regional price parities (RPPs) and their applications at the state level. These RPP data are also available for metropolitan statistical areas (MSAs), which include a principal city and its surrounding area. So we can conduct a similar analysis of price levels and adjusted incomes at the metro level. Data are indexed such that the population-weighted national average is equal to 100. Of the 349 MSAs in the data, 94 fall within 5% of the national average for cost of living.

Consistent with the state-level data, the most expensive cities are heavily concentrated in the Northeast and on the West Coast. Of the 34 MSAs with a cost of living more than 5% higher than the national average, 32 are in either of those two regions. Honolulu, Hawaii (not pictured above), is the priciest MSA, with a cost of living over 24% above the national average. Inland cities are substantially cheaper, especially in the Midwest and the South. In Rome, Georgia, the least costly MSA, the cost of living is about 20 percent lower than the national average.

One implication of these regional cost of living differences is that a dollar in one city isn’t necessarily the same as a dollar in another: Average per capita personal income nationwide is about $43,996. In terms of purchasing power, the equivalent income in St. Louis, Missouri, is below $40,000 due to the relatively low cost of living. Meanwhile, in comparatively expensive New York, New York, the equivalent income is almost $54,000. In other words, as the cost of living goes up, it takes more dollars to buy the same basket of goods and services. Hence, using the RPPs to adjust per capita personal income for cost of living yields a more accurate measure of how much the average person in a given city can consume.

As seen on the next map, real (cost-of-living-adjusted) per capita personal income is more broadly dispersed geographically than the RPPs: 40 MSAs across 32 different states have a real per capita personal income more than 10% greater than the national average. Midland, Texas, has the highest income, at almost $96,000 (adjusted dollars) per person.

Given that we derive real per capita personal income by dividing nominal income by cost of living, one might expect that the most costly cities have the lowest adjusted incomes. While that is sometimes true, it’s not always the case. For example, San Jose and San Francisco, California, and Bridgeport, Connecticut, are each in the top ten for both most expensive cities and highest-earning cities. Similarly, McAllen, Texas, has the lowest real per capita personal income of any MSA, about $27,000, despite being one of the 20 cheapest cities in the country.

How these maps were created: The original post referenced interactive maps from our now discontinued GeoFRED site. The revised post provides replacement maps from FRED’s new mapping tool. To create FRED maps, go to the data series page in question and look for the green “VIEW MAP” button at the top right of the graph. See this post for instructions to edit a FRED map. Only series with a green map button can be mapped.

Suggested by Andrew Spewak and Charles Gascon.

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