Real Value of $100 in Each State

Wednesday, August 17, 2016

Ohio is a low-price state. There, $100 will buy you stuff that would cost $111.98 in a state at the national average price level. You could think of this as meaning that Ohioans are, for the purposes of day-to-day living, 11 percent richer than their incomes suggest.

It’s generally the case that states with higher nominal incomes also have higher price levels. This is because there is a relationship between the two: in places with higher incomes, the prices of finite resources like land get bid up. (This is especially true in cities.) But the causation also runs in the opposite direction. 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.

Category: Tax, Compensation, Wages