High-wage vs. High-cost

Matt Yglesias had a post up a few days ago asking why American authors laud high-wage, low-unemployment northern European countries when the US has examples of that sort of local economy within its borders–the case in point that Yglesias brings up is Boston:

Consider the Boston-Quincy-Cambridge Metropolitan Statistical Area of the United States. Greater Boston contains about the same number of people as Denmark. And in Purchasing Power Parity terms it’s richer than Denmark. There is inequality in Greater Boston, but prosperity is broadly shared—median household income was $68,515 in 2010. That’s 25 percent higher than the American average. The 10th percentile of Greater Boston workers earns $11.05 an hour. That’s 28 percent higher than the American average.

Taking nothing away from Boston, the biggest problem with this argument is that it doesn’t take the cost of living into account. Someone earning the median income in Boston, at 25% above the national average, is no better off if it costs 30% more to live in Boston than a typical American city. In fact, they would be worse off!

Using a simple cost-of-living calculator, you can quickly see that Boston is much much more expensive than most parts of the country. To take one of Yglesias’ other favorite examples, I compared the city of Minneapolis to Boston–housing was 34% more expensive in Boston; transportation 8%, and healthcare 18% more expensive–that alone will erode the higher median salary level. Maybe there is a reason that authors write about northern Europe after all…

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