Same Salary with Different Cost of Living

by Marillyn Tefft, Senior Researcher 2. January 2014 12:57

 

 It is important for HR and mobility professionals to understand cost-of- living (COL) differential analysis when presenting data to employees and management. Although it is most common for the home price to be the biggest determinant of overall COL differentials, each budget expenditure component contributes.   To illustrate differences, ERI Economic Research Institute details below the estimated COL to maintain the same management/professional standard of living at a salary of $100,000 at the U.S. National Average in San Diego, Philadelphia, Atlanta, Chicago, Phoenix and Houston.  Not surprisingly, in Houston, the COL is below the U.S. National Average, while, in Atlanta, it is slightly higher.  In San Diego, the COL is significantly above the U.S. National Average.  The U.S. National Average is calculated quarterly from the over 7,000 locations covered by ERI's Relocation Assessor data bases.

Below are common questions addressed by the Relocation Assessor COL differential estimates: 

Given the U.S. National Average expenditure pattern at an annual earnings of $100,000, how much does it cost to duplicate this lifestyle in San Diego, Philadelphia, Atlanta, Chicago, Phoenix and Houston?  

What components of expenditures vary the most?

How do housing and taxes affect these COL differentials?

Compared to the U.S. National Average lifestyle, a family needs to earn $92,937 to live a similar lifestyle in Houston - the COL in Houston is 7.1% lower than the U.S. National Average.  Conversely, in San Diego, a family needs annual earnings of $120,475 to purchase the same U.S. National Average lifestyle. The COL is 20.5% higher in San Diego than the U.S. National Average.  Phoenix weighs in at just about the same as the U.S. National Average with only an additional $894 needed to provide a similar lifestyle.  

 Estimates of the same market basket of Consumables ranges from $4,228 below the U.S. National Average (of $25,099) in Houston to $3,318 above in Philadelphia.   Housing cost, which includes utilities and property taxes, is the expenditure which varies the most among the locations - $20,488 higher in San Diego to only $1,707 higher in Houston. 

 Perhaps surprisingly, the estimated income and payroll taxes are lower in San Diego than in Atlanta.  The Relocation Assessor’s tax estimates include the estimated deduction for the mortgage interest payment along with effective federal, state and local taxes.  The more expensive home in San Diego results in a larger mortgage and greater mortgage interest payments, thus larger mortgage interest deductions.  The U.S. National Average effective tax estimates include an overall average for all federal, state and local taxes.   In Houston, estimated taxes are $4,320 lower than the U.S. National Average since Texas has no state income tax.