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March 2005, Vol. 128, No.3
Pay relatives for metropolitan areas in the NCS
Maury B. Gittleman
When workers and firms make decisions on where to locate, a number of factors come into play. One important consideration is how compensation differs across areas. Workers will tend to be attracted to cities where the compensation is higher, provided, of course, that the benefits of more generous pay are not completely offset by a steeper cost of living or by undesirable characteristics of the better paying city, such as higher levels of crime and pollution or an inferior climate. Firms, by contrast, have an incentive to relocate to cities in which labor is cheaper, all else being equal. Besides being an input for location decisions, information on interarea variation in compensation is relevant to a host of other purposes, including wage and salary administration, collective bargaining, and the analysis of any number of economic issues wherein geography is a consideration.
Under its National Compensation Survey (NCS) program, the Bureau of Labor Statistics regularly publishes data on wage levels in metropolitan areas.1 Large differences across areas are evident in mean hourly earnings for the local economies as a whole.2 While these data provide valuable information for many purposes, they are not generally appropriate for cases in which the data user wishes to know how compensation differs among areas for any given job. Metropolitan areas vary greatly in terms of the types of jobs that are available to the local labor force, with one area having, say, a high concentration of professional workers, while another has an above-average share of blue-collar employment. Thus, one cannot tell from an examination of overall mean wage rates whether one metropolitan area pays better than another because it tends to have higher pay for any given job or because jobs in that area are more concentrated among positions that tend to have higher rates of pay in all localities. A second, more technical, reason comparisons of overall mean levels may be somewhat misleading is that, even for surveys from the same year, areas will differ from each other in terms of when the data were collected. Thus, one area may have wage data referring primarily to the beginning of the year, another to the end of the year, when wages everywhere will tend to be higher because of inflation and other secular trends.
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1 For details on the NCS, see the appendix.
2 To be more precise, the locality surveys do not actually cover all employees. Workers in agriculture, private households, and the Federal Government are excluded, as are those in private establishments or State and local governments with fewer than 50 employees.
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National Compensation Survey
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