The Cities Where A Paycheck Stretches The Furthest



Tags: living, nation, average, housing, francisco, cities, houston, income, angeles, annual

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When we think of places with high salaries, big metro areas like New York, Los Angeles or San Francisco are usually the first to spring to mind. Or cities with the biggest concentrations of educated workers, such as Boston.

But wages are just one part of the equation — high prices in those East and West Coast cities mean the fat paychecks aren’t necessarily getting the locals ahead. When cost of living is factored in, most of the places that boast the highest effective pay turn out to be in the less celebrated and less expensive middle part of the country. My colleague Mark Schill of Praxis Strategy Group and I looked at the average annual wages in the nation’s 51 largest metropolitan statistical areas and adjusted incomes by the cost of living. The results were surprising and revealing.

In first place is Houston, where the average annual wage in 2011 was $59,838, eighth highest in the nation. What puts Houston at the top of the list is the region’s relatively low cost of living, which includes such things as consumer prices and services, utilities and transportation costs and, most importantly, housing prices: The ratio of the median home price to median annual household income in Houston is only 2.9, remarkably low for such a dynamic urban region; in San Francisco a house goes for 6.7 times the median local household income. Adjusted for cost of living, the average Houston wage of $59,838 is worth $66,933, tops in the nation.

Most of the rest of the top 10 are relatively buoyant economies with relatively low costs of living. These include Dallas-Fort Worth (fifth), Charlotte, N.C. (sixth), Cincinnati (seventh), Austin, Texas (eighth), and Columbus, Ohio (10th). These areas all also have housing affordability rates below 3.0 except for Austin, which clocks in at 3.5. Similar  situations down the list include such mid-sized cities as  Nashville, (11th), St.Louis (12th), Pittsburgh, (13th), Denver (15th) and New Orleans (16th).

One major surprise is the metro area in third place: Detroit-Warren-Livonia, Mich. This can be explained by the relatively high wages paid in the resurgent auto industry and, as we have reported earlier, a huge surge in well-paying STEM (science, technology, engineering and math-related) jobs. Combine this with some of the most affordable housing in the nation and sizable reductions in unemployment — down 5% in Michigan over the past two years, the largest such drop in the nation. This longtime sad sack region has reason to feel hopeful.

Only two expensive metro areas made our top 10 list. One is Silicon Valley (San Jose-Sunnyvale-Santa Clara), where the average annual wage last year of $92,556, the highest in the nation, makes up for its high costs, which includes the worst housing affordability among the 51 metro areas we considered: housing prices are nearly 7 times the local median income. Adjusted for cost of living, that $92,556 paycheck is worth $61,581, placing the Valley second on our list.

In ninth place is Seattle, which placed first on our lists of the cities leading the way in manufacturing and STEM employment growth. Housing costs, while high, are far less than in most coastal California or northeast metropolitan areas.

What about the places we usually associate with high wages and success? The high pay is offset by exceedingly high costs. Brain-rich Boston has the fifth-highest income of America’s largest metro areas but its high housing and other costs drive it down to 32nd on our list. San Francisco ranks third in average pay at just under $70,000, some $20,000 below San Jose, but has equally high costs. As a result, the metro area ranks a meager 39th on our list.

Much the same can be said about New York which, like San Francisco, is home to many of the richest Americans and best-paying jobs. The average paycheck clocks in at $69,029, fourth-highest in the country, but high costs, particularly for housing, eat up much of the locals’ pay: adjusted for cost of living, the average salary is worth $44,605. As a result, the Big Apple and its environs rank only 41st on our list.

Long associated with glitz and glitter, Los Angeles does particularly poorly, coming in 46th on our list. The L.A. metro area may include Beverly Hills, Hollywood and Malibu, but it also is home to South-Central Los Angeles, East L.A. and small, struggling industrial cities surrounding downtown. The relatively modest average paycheck of $55,000 annually, 12th on our list, is eaten up by a cost of living that is well above the national average. This creates an unpleasant reality for many non-celebrity Angelenos.

Many of the metro areas that rank highly on our list have enjoyed rapid population growth and strong domestic in-migration. Houston, Dallas-Fort Worth, and Austin all have been among the leaders the nation in both domestic migration and overall growth both in the last decade and so far in this one. In the past year, for example, Dallas led the nation with 40,000 net migrants while Austin’s population growth, 4 percent, was the highest rate among the large metropolitan areas.

In contrast, many of the cities toward the bottom of our list — notably the Los Angeles and New York areas — have led the country in domestic outmigration. Between 2000 and 2009, the nation’s cultural capitals lost a total of over 3 million people to other parts of the country. Although migration has slowed in the recession, the pattern has continued since 2010.

And how about the future? Income and salary growth has been so tepid recently that few large cities can claim to have made big gains over the past five years; there has been continued volatility as some regions that did worst in the past decade — for example San Francisco — pick up steam. Unfortunately any growth in such highly regulated areas also tends to increase costs rapidly, particularly for housing. In California, this is made much worse by both soaring taxes and a regulatory regime that drives up costs faster than income games.

Similarly these high prices seem to have the effect of driving out middle-class workers; places like New York, Los Angeles and San Francisco have extraordinary concentrations of both rich and poor workers but fewer in the middle. As we pointed out in our annual job and STEM rankings, many technology, manufacturing and business service jobs are heading not to the hotspots but more to the central part of the country.

Over time, it seems clear that, for the most part, the best prospects for the future lie in places that both experience income and employment gains but remain relatively affordable. These include some cities that didn’t crack the top 10 of our list but appear to be gaining ground, such as Nashville, Pittsburgh, St. Louis, San Antonio and New Orleans, a once beleaguered city that has experienced the nation’s fastest per capita personal income growth since 2005.

Maintaining affordability and a wide range of high-paying jobs many not be as glamorous a metric for success as the number of hip web startups or the concentration of educated people. But over time it is likely to be about as good a guide to future prospects as we have.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

This piece originally appeared in Forbes.

Houston photo by BigStockPhoto.com.

Metropolitan Pay per Job 2011 - Adjusted for Cost of Living
MSA Name 2011 Avg. Annual Wage Unadj. Rank 2011 Adj. Annual Wage Adj. Rank Rank Change
Houston-Sugar Land-Baytown, TX $59,838 8 $66,933 1 7
San Jose-Sunnyvale-Santa Clara, CA $92,556 1 $61,581 2 (1)
Detroit-Warren-Livonia, MI $53,424 17 $57,016 3 14
Memphis, TN-MS-AR $48,025 32 $55,908 4 28
Dallas-Fort Worth-Arlington, TX $53,453 16 $55,564 5 11
Charlotte-Gastonia-Rock Hill, NC-SC $51,143 18 $54,816 6 12
Cincinnati-Middletown, OH-KY-IN $49,886 24 $54,580 7 17
Austin-Round Rock-San Marcos, TX $50,422 19 $54,393 8 11
Seattle-Tacoma-Bellevue, WA $60,123 7 $53,874 9 (2)
Columbus, OH $48,483 30 $53,691 10 20
Nashville-Davidson--Murfreesboro--Franklin, TN $48,343 31 $53,595 11 20
St. Louis, MO-IL $48,638 29 $53,390 12 17
Pittsburgh, PA $49,717 25 $52,444 13 12
Chicago-Joliet-Naperville, IL-IN-WI $56,246 10 $52,419 14 (4)
Denver-Aurora-Broomfield, CO $54,991 13 $52,372 15 (2)
New Orleans-Metairie-Kenner, LA $50,046 23 $52,349 16 7
Birmingham-Hoover, AL $46,381 39 $52,349 17 22
Washington-Arlington-Alexandria, DC-VA-MD-WV $71,180 2 $52,300 18 (16)
Atlanta-Sandy Springs-Marietta, GA $50,273 20 $51,989 19 1
Raleigh-Cary, NC $47,577 35 $50,722 20 15
Milwaukee-Waukesha-West Allis, WI $50,183 22 $50,537 21 1
Richmond, VA $50,198 21 $50,148 22 (1)
Minneapolis-St. Paul-Bloomington, MN-WI $55,300 11 $50,023 23 (12)
Louisville/Jefferson County, KY-IN $45,832 41 $49,980 24 17
Phoenix-Mesa-Glendale, AZ $48,022 33 $49,764 25 8
Salt Lake City, UT $47,064 37 $49,751 26 11
Hartford-West Hartford-East Hartford, CT $61,551 6 $49,718 27 (21)
Kansas City, MO-KS $49,390 28 $49,688 28 0
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD $57,745 9 $49,355 29 (20)
Oklahoma City, OK $44,852 44 $49,019 30 14
Cleveland-Elyria-Mentor, OH $49,531 26 $48,847 31 (5)
Boston-Cambridge-Quincy, MA-NH $66,438 5 $48,389 32 (27)
Tampa-St. Petersburg-Clearwater, FL $44,218 46 $48,168 33 13
Rochester, NY $47,228 36 $47,899 34 2
Jacksonville, FL $44,840 45 $47,753 35 10
San Antonio-New Braunfels, TX $43,920 47 $47,175 36 11
Buffalo-Niagara Falls, NY $46,210 40 $46,866 37 3
Baltimore-Towson, MD $54,980 15 $46,241 38 (23)
San Francisco-Oakland-Fremont, CA $69,041 3 $46,228 39 (36)
Las Vegas-Paradise, NV $44,910 43 $44,865 40 3
New York-Northern New Jersey-Long Island, NY-NJ-PA $69,029 4 $44,605 41 (37)
Virginia Beach-Norfolk-Newport News, VA-NC $46,934 38 $44,572 42 (4)
Portland-Vancouver-Hillsboro, OR-WA $49,472 27 $43,549 43 (16)
Orlando-Kissimmee-Sanford, FL $41,932 48 $43,096 44 4
San Diego-Carlsbad-San Marcos, CA $54,985 14 $42,102 45 (31)
Los Angeles-Long Beach-Santa Ana, CA $55,191 12 $41,559 46 (34)
Miami-Fort Lauderdale-Pompano Beach, FL $45,022 42 $41,286 47 (5)
Providence-New Bedford-Fall River, RI-MA $47,862 34 $38,107 48 (14)
Riverside-San Bernardino-Ontario, CA $41,825 49 $37,211 49 0
Indianapolis-Carmel, IN $48,767 no data
Sacramento--Arden-Arcade--Roseville, CA $53,057 no data
2011 wage data: EMSI Complete Employment, 2012.1
Cost of living data: C2ER
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