The Cost of Living

May 15, 2007 by Adam C. Powell, Ph.D.

Over the last thirteen months, I have lived in Boston and Philadelphia. I will soon be moving to Louisville for the summer. In Boston, buying a box of kung pao chicken from a food truck would cost $4.25, while in Philadelphia, it only costs $3.50. Some cities have overall higher prices than other cities. This is in part a result of the scarcity of land in the city, which affects the cost of renting space. The more demand there is for renting a retail space, the higher the rent will be charged to the vendor. The higher the rent the vendor pays, the higher the prices are passed on to customers. Food trucks are typically licensed to operate only in specific parking spaces. The price of a parking space is a function of the demand for that space.

 Will I be better off if I move to a city with a lower cost of living?

It is not always clear if moving to a city with a lower cost of living will improve one’s life. Cities with lower costs also tend to pay lower wages. If the Philadelphia food trucks are charging less than the Boston food trucks, it is very possible that the food truck workers in Philadelphia are also earning lower wages. If the price difference is simply due to a difference in licensing costs, City Hall is earning less in the cheaper city.

CNN’s Cost of Living Calculator provides you with information on the relative costs of groceries, housing, utilities, transportation, and healthcare in two cities. According to the calculator, groceries will cost 24% less in Louisville than in Philadelphia, but transportation will cost 8% more.

Salary.com’s Cost Of Living Wizard provides you with information on your likely percentage change in cost of living and likely percentage change in salary. Using these two computations, it arrives at your likely change in disposable income resulting from the move. According to the site, moving from Philadelphia to Louisville will reduce my cost of living by 27% and will reduce my salary by 10%. As the drop in salary is less than the drop in cost of living, I will have more disposable income while living in Louisville than while living in Philadelphia.