Wages are Higher in Illinois Even After Accounting for the Cost of Living

Frank Manzo IV is the Policy Director of the Illinois Economic Policy Institute (ILEPI). Visit ILEPI at www.illinoisepi.org or follow ILEPI on Twitter @illinoisEPI.

A recent report by the Tax Foundation showed the real value of $100 in each state, based on “regional price parities” developed by the Bureau of Economic Analysis at the U.S. Department of Commerce. The map demonstrates that prices for the same goods are much cheaper in some states, such as Mississippi, than in others, such as New York. The analysis fairly notes:

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. 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.

But the report has led some publications to claim that $100 buys more in “right-to-work” states. The problem with this claim, of course, is that higher wages in collective-bargaining (CB) states mean that workers in those states earn $100 a lot faster.

The figure below uses average hourly earnings of all private sector workers in May 2015 for each state from the Bureau of Labor Statistics’ “State and Area Employment, Hours, and Earnings” dataset and the regional price parities for each state by the Bureau of Economic Analysis. States are then ranked by real hourly wage after adjusting for purchasing power.

The data reveal that eight of the Top 10 states, including Illinois, are CB states. It turns out that workers in RTW states earn less even after accounting for the cost of living.

Private Sector Hourly Earnings Adjusted2Despite a higher cost of living in Illinois, private sector workers in the Land of Lincoln still earn higher wages than their counterparts in border states. Illinois workers earn $25.47 per hour after accounting for the cost of living, the 10th-best compensation in the nation. Illinois workers earn 27 cents more per hour than Wisconsin workers ($25.20) and 69 cents more per hour than Indiana workers ($24.77). While $100 in Kentucky offers the greatest “bang for the buck” in the region, Kentucky workers still earn just $23.66 in real wages, $1.81 less per hour than Illinois workers.

Over the course of a year, an average full-time private sector worker would earn between $555 and $3,760 more in Illinois than in a border state — even after accounting for the cost of living. While the unemployment rate remains higher in Illinois than in neighboring states, Illinois is still one of the best states to make a living in 2015.

Your dollars might not go as far here, but you’ll earn more of them.

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