Geographic Inflation

Millenials often move to large cities in pursuit of job opportunities. However, they often are unprepared for the immense living costs. To better inform Americans in their decision to migrate, each city should have a geographic inflation value (GIV). Just like the GDP Deflator compares price levels over time, the GIV compares price levels over location.

Calculating GIV for an area would be based on data already collected and easily accessible: its median rent and median household income. I chose median rent as my price level indicator because it functions well as a simple representation of living costs. Also, I was going to choose median house price, but then I looked at San Francisco's census data and realized that owning a home in a large city is exorbitantly expensive and not a good indicator of living costs, especially for young adults who very likely rent and not own a living space.

Just as the GDP Deflator has a base year with the value 100, so shall the GIV with a base location. Really, any city could be used (I envision a website where users type their city name, which the site intakes as the base, and then some other city that the users may want to move to, allowing the site to calculate the latter area's GIV), so I shall choose my hometown:

100 GIV = Median Rent = $1227

Median Household Income $109712

Let's compare that to San Francisco, my prototype of expensive, large cities:

As expected, SF has a high GIV of 159.

As expected, SF has a high GIV of 159.

Now let's compare my town to Wyoming, a less dense and more rural area:

Surprisingly, Wyoming has a higher GIV than my hometown, which stems from the stark contrast in earnings. However, perhaps most Wyoming residents own their living spaces instead of renting them. I can replace median rent with median household cost:

This displays a much more intuitive comparison between rural and suburban living, although the difference is surprisingly small. However, my hometown is probably not a good representation of the suburbs because we may have an unusually high median household income, perhaps due to what I believe is an unusually high proportion engineers. There are also very expensive homes, whose prices probably scale up faster than income. Nevertheless, my town's unusual statistics are not that informative as I am not sure whether suburban or rural areas should have a lower GIV.

The inflexibility of rent compared to home prices is interesting, however. I plotted median rent vs. median house value divided by 1000 of, from left to right, the areas of Wyoming, my hometown, and San Francisco:

Sure enough, house prices grow faster than rent.

Personal Notes

Based on GIV, the best situation is to take advantage of a big city's inflated wages and increased job opportunities while avoiding its obscene costs. This can be accomplished by working remotely for an employer based in a metropolis and living in a suburb or a rural area. I only consider this possibility because my mother, after her Michigan office was closed down, had the option of applying to work remotely in her company's Atlanta office. If she had chosen that job, perhaps she could have experienced my scenario of higher wages and relatively low living costs. Then again, the South tends to be price deflated compared to the coasts or the Midwest.

I realize that GIV's worth breaks down when salary is known. For example, I remember discussions of moving some federal agencies to the Midwest because they did not need to be in Washington DC. The Midwest has cities that used to be manufacturing boomtowns but have since declined in population due to job outsourcing. However, they still have the infrastructure to support a large residency like airports and sizable urban areas. Federal bureaucrats need only consider other cities' median rents or housing prices in deciding whether to support an agency move, because their salary will likely stay the same. Similarly, my parents probably will not earn much money during retirement, so they should simply learn an area's median household value or rent before moving there. They have considered Texas and China.

Furthermore, many Americans, especially college graduates, seem forced to move to a large city in pursuit of job opportunities. For example, over three in five Michigan Ross BBA graduates are employed in just two areas: Chicago Metro and the Tri-State Area. More anecdotally, companies looking for creative talent often look toward the country's two hotbeds, NY and LA, requiring job searchers to live there as well.

The GIV is most useful for those with mobility, who have the choice than in deciding where to live and work. Certain workers, like software engineers, are desired by companies across the country, granting them the decision of living in nearly whatever area they reside, be it urban, suburban, or rural (perhaps not so much in the last setting). This makes the GIV useful to them, and hopefully many others too.

Thank you for reading,

George Fane