Few surprises in this Tax Foundation comparison of the purchasing power of $100 in the 50 states and DC. But we find it interesting, nonetheless. As the map below shows, $100 here is worth about $95, ranking us #42. In No.1 ranked Mississippi, $100 buys about $116 worth of stuff.
That there are cost of living differences among the states is old news. Similar differences, of course, also exist within states. Your house hunting budget goes further in Eastern Washington, for example, than in King County. Regional and interstate variances matter, though, and people with options will consider them.
The Tax Foundation explains,
Prices for the same goods are often much cheaper in states like Missouri or Ohio than they are in states like New York or California. As a result, the same amount of cash can buy you comparatively more in a low-price state than in a high-price state.
The U.S. Bureau of Economic Analysis has been measuring this phenomenon for three years now; it recently published its data for prices in 2016. Using this data, we have adjusted the value of $100 to show how much it buys you in each state.
Regional price differences are strikingly large; real purchasing power is 34 percent greater in Mississippi than it is in New York. In other words, by this measure, if you have $50,000 in after-tax income in Mississippi, you would need after-tax earnings of $67,000 in New York just to afford the same overall standard of living.
But the the cost-of-living also affects compensation.
It’s generally the case that states with higher nominal incomes also have higher price levels. This is because in places with higher incomes, the prices of finite resources like land get bid up. (This is especially true in cities.) What is also true is that places with high costs of living pay higher salaries for the same jobs. This is what labor economists call a compensating differential; the higher pay is offered in order to make up for the low purchasing power.
It’s important from a public policy perspective, as well.
This has substantial implications for public policy, which is often progressive with respect to income. Many policies–like minimum wage, public benefits, and tax brackets–are denominated in dollars. But with different price levels in each state, the amounts aren’t equivalent in purchasing power.
Route Fifty also reports on the TF comparisons.