Comparing Metro Phoenix

Overall Average Wage

Description: The average wage is calculated as total wage and salary disbursements divided by wage and salary employment. No adjustment is made for full-time vs. part-time work.

Rationale: The average wage is a measure of prosperity and economic well-being that is not influenced by unearned income as is per capita personal income.

Data Sources: The data come from the U.S. Department of Commerce, Bureau of Economic Analysis (BEA): http://www.bea.gov/regional/reis/default.cfm?catable=CA34&section=2. The adjustment for inflation is made using the GDP implicit price deflator.

Comments on the Quality of the Data: The data are limited to wage and salary employment. No adjustment is made for the number of hours worked. Use of the GDP deflator eliminates the effects of inflation from the wage data. No adjustment has been made for geographic differences in the cost of living. Thus, it may not be appropriate to conclude that economic well-being is better in one metropolitan area than another based on the unadjusted average wage being higher.

An adjustment for geographic differences in the cost of living has not been made for multiple reasons:

  1. No comprehensive measure of living costs is available for all metro areas (or states).
  2. The ACCRA cost-of-living index frequently is used for this purpose, but not all metro areas participate in this study. Further, the study is designed to measure living costs for only a segment of the population (professional and managerial households in the top income quintile), and taxes are not included.
  3. Differences in living costs in part reflect differences in the perceived quality of life. For example, an individual may choose to live in an area in which cost-of-living-adjusted wages are relatively low because of the area’s perceived amenities. And this effect explains a significant amount of observed price differences across regions. The academic literature suggests that even if an acceptable measure of cost of living were available, wages (or other dollar measures) should be adjusted only partially (perhaps 40 percent) for living costs.

While geographic differences in living costs can vary over time, the over-time variations generally are modest relative to the magnitude of the level of the geographic differences. Thus, the rate of change over time in wages (or other dollar measures) is less affected by geographic differences in living costs than is a comparison of areas at one point in time.