Constructing Interarea Compensation Cost Indexes With Data from Multiple Surveys

Brooks Pierce, John W. Ruser, and Kimberly D. Zieschang


We compare the cost of labor input for 39 areas of the United States using Tornqvist multilateral (transitive) place to place index numbers incorporating characteristics-based, hedonic labor composition adjustment as an integral feature. Our composition adjustments are based on establishment data at the level of the approximately 18,000 jobs priced in the Employment Cost Index (ECI) survey, and worker data at the level of the 39 areas in the ECI sample from the Current Population Survey. We find that the compensation parities prior to labor composition adjustment are generally more variable from place to place than after adjustment, and that the primary determinants of geographical compensation variations after controlling for industry and occupation are firm size and unionization from the establishment data, and education/experience form the worker data.