Where’s the Best Place to Live for Your Occupation? Launching PayPlace
Why is a janitor better in Cleveland than San Francisco and how much should we care about that? A new tool to explore wage against cost-of-living in metropolitan areas.
Tl;dr: I made a tool that lets you check the median wage and cost of living for your occupation in metropolitan areas across the country. Try it out.
I started with one question: is it better to be a janitor in Cleveland than San Francisco?
San Francisco is flowing with money and productivity, much more than Cleveland, and we have this intrinsic sense that progress is good. The more innovation, the better for everyone. Gut checks confirm this as well. Sure, poverty still exists, but poverty today tends to include air conditioning, appliances, televisions, phones, and the internet. A century ago this was not true.
Yet, today, we can also check cities with more capital against those with less. As a test I looked at the average pay of a janitor in San Francisco versus Cleveland, using Bureau of Labor Statistics data. A janitor in San Francisco earns a mean wage of $46,540 while one in Cleveland earns $36,050.
A proper comparison, though, would also account for how far a dollar stretches in each area. So, I used the Economic Policy Institute's Family Budget Calculator to compare cost of living across the metropolitan areas. For 1 adult and no children, the San Francisco cost of living is $74,831 while Cleveland’s is $40,117. A janitor's salary covers 62.2% of living costs in San Francisco versus 89.9% in Cleveland.
In other words, it is financially better to be a janitor in Cleveland than San Francisco.
PayPlace
After doing this analysis with janitors, I wondered how this pattern might play out across different occupations and cities. So, I created PayPlace to help people explore these wage-cost ratio differences across metropolitan areas. The tool lets users input their occupation and family structure to see how different regions compare, calculating the ratio of median wages to local cost of living.
For married couples, PayPlace can evaluate two different occupations simultaneously, helping families find the best location for their combined careers. Users can also benchmark their current metropolitan area against others to see how it measures up.
A few limitations are worth noting:
The analysis covers only base compensation, not total compensation including benefits
BLS occupation data isn't available for every metropolitan area
Individual job offers may vary significantly from the median wage used in these calculations
Despite these limitations, PayPlace can be a useful tool for individuals looking to maximize their financial wellbeing for their profession.
Regional Price Differences
Many people would likely intuit that being a janitor in Cleveland is better than San Francisco. Regional price differences exist, and the metropolitan cores we associate with the most progress tend to be the most expensive. Indeed, when looking at the median wage across all occupations, there is a negative trend between increased cost of living and wage-cost ratio.
Often the most expensive cities are also the densest. In these cities, economies of scale can operate. Public services can cover more people for less per dollar. Restaurants can make food for more people. Stores can purchase inventory at higher quantities. These economies of scale should operate to push prices down, but that is not the experience.
Regional price differences are driven primarily by the cost of land. Housing prices--the largest expense for most families–are often the easiest way to understand this with the average studio apartment rent in New York City of $3,125. The effect goes beyond housing, though. The local burrito shop can serve more people due to the density, but rather than being to lower prices because of increased demand, the burrito shop must pay the rent to occupy that location. To the extent other costs are higher in a city, they are often driven by land prices.
For the most part, land itself does not drive the prosperity of the region. The agglomeration of talent and innovation creates the wealth of the city. At the same time, in these regions, that wealth ends up directly driving up the price of the land. Once productivity occurs and expands in an area, landowners recognize that they can charge more for their land which raises the cost of living for everyone.
I call specific attention to the role of land here because a proper diagnosis can help with better solutions. There is immense wealth locked in land that is generated through the agglomeration of talent in the city.
The land does not possess inherent value; rather, the community makes it valuable. Cities must do a better job of returning this land value to the benefit of the community. This can allow cities to create economies where janitors, teachers, and service workers can afford to live and work alongside the white-collar workers. A split-rate tax would move cities in the right direction.
Just for Fun
I decided to play with the data and plot the bottom 10 paying occupations, according to BLS data. The negative trend still applies, but actually appears not to be as pronounced as the trend for all occupations. I suspect this is because for the lowest paying jobs, companies face public pressure to account for cost of living. At the same time, states with higher cost of living tend to adopt higher minimum wages.
In the plot, red points are metropolitan areas in states where there is either no minimum wage or the minimum wage is set to the federal minimum wage ($7.25/hour). It appears that these metropolitan areas tend to have lower wage-cost ratio for their cost of living.
To expand, I plot the mean wage-cost ratio of the bottom 10 occupations for each state against the states minimum wage. There is a positive trend between a state's minimum wage and the wage-cost ratio. I found this analysis interesting, so I include it here, but I don’t claim to be making any policy argument with it.
While our most prosperous cities generate tremendous wealth through innovation and human capital, much of that prosperity gets captured in escalating land values rather than higher living standards for all workers. Perhaps in the long run, people will tend to move toward areas with better economic circumstances. When they don't, it's likely due to factors such as family ties and personal preferences.
But the real solution shouldn’t always be about choosing between Cleveland and San Francisco. It should be about ensuring that the wealth generated by our most productive cities benefits everyone who helps make those cities work. Until then, PayPlace can help individuals make more informed decisions about where their work will be most valued.