TECHNICAL NOTE

Pay relative controls and calculations

     Pay relatives control for differences among areas in occupational composition as well as
establishment and occupational characteristics.  Metropolitan areas often differ greatly in the
composition of establishments and occupations that are available to the local workforce.  For
example, in Brownsville-Harlingen, Texas, the ratio of workers in the high-paying management,
business, and financial occupational group to the number of workers in all occupations is under 6
percent, whereas nationally this ratio is nearly 10 percent.1  In addition to these factors, the NCS
collects compensation data for metropolitan areas at different times during the year.  Payroll
reference dates differ between areas, which makes direct comparisons between areas difficult.

     The pay relative approach controls for these differences to isolate the geographic effect on
wages.  To illustrate the importance of controlling for these effects, consider the following example
.  The average pay for construction and extraction workers in the New York-Newark-Bridgeport,
NY-NJ-CT-PA metropolitan area in 2010 was $32.54 and in the United States, $21.18.2  A simple pay
comparison can be calculated from the ratio of the two average pay levels, multiplied by 100 to
express the comparison as a percentage.  The pay comparison in the example is calculated as:

($32.54 ÷ $21.18) × 100 ≅ 154

     This comparison does not control for differences between New York and the nation in the mix of
occupations, industries, and other factors.  A more accurate estimate of the geographic effect of
wages in New York can be obtained by taking these differences into account.  Controlling for
differences in occupational composition, establishment and occupational characteristics, and the
payroll reference date in New York relative to the nation as a whole, the pay relative for
construction and extraction occupations in New York is 129.

Survey methodology

     Pay relatives were estimated using a multivariate regression technique designed to control for
interarea differences.  This technique controls for the following ten characteristics:

     - Occupational type
     - Industry type
     - Work level
     - Full-time / part-time status
     - Time / incentive status
     - Union / nonunion status
     - Ownership type
     - Profit / non-profit status
     - Establishment employment
     - Payroll reference date

     Even accounting for the characteristics used in the current regression analysis, there is still
wage variation across the areas.  The variation is due to differences in wage determinants that were
not included in the model.  Examples of these determinants include price levels, environmental
amenities such as a pleasant climate, and cultural amenities.

     Historical pay relatives data are available for the survey years 1992-1996, 1998, 2002,
2004-2009.  There are several differences between the recent pay relatives and the pay relatives for
earlier years, including different industry and occupation classification systems, varying
methodology, and different survey designs.  These differences limit comparability.  The pay relatives
since 2004 have been calculated using the same industry and occupation classification systems,
methodology, and survey design.  Nonetheless, comparisons between the estimates for these years
should be made only with caution.

     For more details on survey design, methodology, classification systems, recent changes in the
survey, and appropriate uses and limitations of the data, see BLS Handbook of Methods, Chapter 8,
“National Compensation Measures,” available on the Internet at
http://www.bls.gov/opub/hom/homch8_a.htm, especially the major section “Area-to-Nation and
Area-to-Area Pay Comparisons.”

Obtaining information

     Articles, bulletins, and other information from the National Compensation Survey may be obtained
by calling (202) 691-6199, sending email to NCSinfo@bls.gov, or visiting the Internet site
http://www.bls.gov/ncs.  Information in this release will be made available to sensory impaired
individuals upon request.  Voice phone: (202) 691-5200; Federal Relay Service Number: 1-800-877-8339.



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Footnotes


   (1)  Data for this example are based on the May 2010 Metropolitan and Nonmetropolitan Area
Occupational Employment and Wage Estimates, on the Internet at
http://www.bls.gov/oes/current/oessrcma.htm.

   (2)  Average pay for construction and extraction workers in New York and for the United States
are based on wage estimates published in New York-Newark-Bridgeport, NY-NJ-CT-PA National
Compensation Survey, May 2010 and National Compensation Survey: Occupational Earnings in the United
States, 2010, on the Internet at http://www.bls.gov/ncs/ocs/compub.htm.