<< Click to Display Table of Contents >> Navigation:  Additional Geographic Assessor Topics (Listed Alphabetically) > Cost-of-Living Structures

Although differentials between areas will vary at different wage/salary levels, the changes in these differentials tend to be gradual.  This is not the case with cost-of-living differentials. ERI has created a model which illustrates that individuals at different earning/spending levels may have strikingly different consumption patterns.  For example, in a state such as Rhode Island, with graduated state income taxes, an individual at minimum wage annual earnings might effectively spend 3% of earnings on state income tax, while top earners might expend 10% on state taxes.  Also, individuals at different earnings/spending levels will tend to spend a greater or lesser percentage of total earnings on combined effective income taxes and then a greater or lesser percentage of after-tax earnings on, for instance, consumables or housing.

 

The earnings level and the weighting of consumption pattern categories (cost-of-living methodology) will affect any reported cost-of-living variances or indices.  Any survey that reports an overall, generalized statement such as, "Subject City costs are xx% above the national average levels," risks oversimplifying and misleading with the reported "results."  The expenditure pattern for each spending level and the assumed spending level itself must be defined.  Nowhere is this factor more important today than in the effect that housing costs play in the cost-of-living equation.  Activity in housing costs following the real estate bubble has greatly influenced rental values (profiled in the Geographic Assessor) in addition to home purchase prices (profiled in the Relocation Assessor).  You may expect to see "cost-of-living" differentials between the same two cities vary by earnings level by as much as 50%.  Costs vary greatly even from quarter to quarter depending upon whether home ownership or rental is assumed.

 

Please note that an individual's annual spending level may exceed the annual salary specified (due to supplemental income from spouse, investments, etc.).  You may wish to review the appropriate Spending Level (rather than Earnings Level) for the cost-of-living comparison.

 

Also note, all cost-of-living comparisons in the Geographic Assessor model rental situations only and are designed to assist with the administration of temporary transfers.  Subscribers to the Relocation Assessor may user-modify "rent" versus "own," home size, family size, etc. for relocations that require greater detail than a single, percentage differential.  For additional information regarding the Geographic Assessor cost-of-living methodology, please refer to the methodology for the Relocation Assessor.