By Joel Kotkin | Forbes.com – Tue, Jul 10, 2012 12:56 AM EDT
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.
No. 1: Houston
In first place is Houston, pictured, 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 important, 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.
No. 2: Silicon Valley
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.
No. 3: Detroit area
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.
Visit Forbes.com to see city photos, study methodology and more detailed numbers
The rest
Most of the rest of the top 10 are relatively buoyant economies with
relatively low costs of living. These include Memphis (fourth),
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).
The other expensive metro on our top 10 list is Seattle, in ninth place. Seattle placed first on our lists of
cities leading the way in manufacturing and
cities leading the way in so-called STEM employment growth
(STEM means science-, technology-, engineering- and
mathematics-related). Housing costs, while high, are far less than in
most coastal California or northeast metropolitan areas.
What about Boston? New York? L.A.?
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.
Futures bright and dim
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.
Visit Forbes.com to see city photos, study methodology and more detailed numbers
source(http://realestate.yahoo.com/news/cities-where-paychecks-stretch-the-furthest.html)
