01 December, 2005

A terrible headline

In spite of two major hurricanes, the best measure of economic growth rose about 4% during the third quarter of 2005. (That would be the Gross Domestic Product.) An economist commented that if not for the hurricanes, GDP would likely have grown 5% or more. Yankees continue to move south, as industries and jobs relocate in our warmer, more tax-friendly environment. (NB: I am not a fan of those tax breaks.)

In what appears to be a rather desperate attempt to snatch defeat from the jaws of victory, the AP has published an article headlined,

People migrate south, west; leave good jobs.

Say what?

The reasoning appears to follow these lines: populations are moving from the Northeast and Midwest to the South and West. States in the South and West have much lower median income than states in the northeast and midwest. Ergo, people are leaving good jobs.

This is a fallacious argument.

To wit: it's true that the median income in Connecticut is $56,409, while median income in Mississipi is $32,397. However, these numbers aren't comparable. First one must consider the difference in the cost of living. For example, according to the Salary Calculator, a renter earning $32,397 in Jackson, Mississippi has the same salary as a renter earning $44,069 in New Haven, Connecticut.

Admittedly, that doesn't account for the other $12,000 needed to get to $56,409, but I suspect that it's understating the difference. It's not clear whether the Salary Calculator is accounting for things like heating costs and toll roads, all of which are substantially higher in the northeast and midwest. If it's not accounting for them, then that $32,397 in Mississippi can start looking an awful lot sweeter.

As another example, my salary is somewhat below the national median household income of $43,318. It is slightly higher than North Carolina's median household income. I think that it's safe to say that North Carolina's cost of living is lower than the national average. So, I can complain that I earn less than the median income, and boast that I earn more than the median income. Since I'm not specifying whose income, neither is a lie.

This is the problem with virtually all discussion of national wage issues, starting with the minimum wage. If you understand why I can both complain and boast about my income in relation to the national or state median, you understand how political debate works at the national level. Since the cost of living differs between states, and even between different regions of states, one simply cannot make broad generalizations of sort made in this article.

1 comment:

jack perry said...

Salary.com's Cost-of-Living Wizard provides an excellent example. The graph shows the following: take a worker in New Haven, CT who is making the $32,397 — a salary on which it must be difficult to get by in Connecticut — and move him to Jackson, MS. For the same job, he is likely to be paid only $27,550, a 15.0% pay cut in raw dollars. However, the cost of living and maintaining the same lifestyle drops by 22.2%.

The same job pays relatively better, even though it "appears" to pay worse to an reporters and editors who look at the raw salary.