Is New York City a better place to work than Charlotte? It depends on your priorities. For many people, the Big Apple with all its glamour and glitz may be the place they want to live. But if your goal is to maximize real income, the Queen City will be the better choice.
In public policy analysis, benchmarking is an important tool. We want to know how other jurisdictions are faring — be they cities, states, or nations. We want to know if they are spending their tax dollars more wisely or have a better model for delivering a particular service.
The problem, however, is that the basis for comparison often consists of raw data with the potential to mislead. Consider the case of metropolitan New York vs. metropolitan Charlotte. The average wage in the New York City-Long Island-Northern New Jersey region is $77,640. The average wage in the Charlotte-Gastonia-Rock Hill region is $57,506. If that’s all you know, and your goal is to maximize income, the choice seems obvious. You’ll earn 35 percent more by moving north.
In reality, however, a dollar of salary in New York simply doesn’t go as far as a dollar of salary in Charlotte. There are wide variations in the prices of homes, apartments, transportation, taxes, and consumer goods. If you adjust for cost of living, as Joel Kotkin recently did for Forbes magazine, you will discover that real salaries average $61,636 in Charlotte, or 19 percent more than the average real salary of $50,169 in NYC.
Most local or state variations in cost of living aren’t this dramatic. Nevertheless, they can be important in making informed choices — be it an individual choosing among job offers or lawmakers choosing among alternative public policies. Over the years, my John Locke Foundation colleagues have made this point repeatedly when discussing issues such as teacher compensation and housing regulation.
In today’s increasingly integrated international economy, in fact, limiting the analysis to local or state variation can itself be unwise. As JLF’s Terry Stoops demonstrated with an innovative study last year, comparing North Carolina’s investment and return on public education with that of our international competitors is very revealing. When adjusted for such factors as cost of living and marginal tax rates, North Carolina’s level of spending on public education is one of the highest in the world. Our level of academic performance is not.
For policymakers, there are two lessons to be learned from this kind of analysis. One of them is that cost matters a great deal. To the extent North Carolina keeps its housing costs, energy prices, transportation costs, taxes, or regulatory burden higher than its economic competitors, it reduces the real, cost-adjusted wages of North Carolinians. This will only make sense if the potential non-wage benefits of such policies exceed the value of wages lost. In most cases, the math doesn’t work. We just end up with higher costs, not better services or outcomes.
The other lesson is that policymakers shouldn’t make snap decisions based on simplistic lists or rankings. Instead, they should insist on apples-to-apples comparisons — the kind of comparisons that, in the case of real wages, take the shine off the Big Apple.
John Hood is president of the John Locke Foundation and a NC SPIN Panelist.