This week we’ll confirm what you already know. It costs less to live in Indiana than in most place in the United States. But we’ll put a number to that belief. With a number, our boosters in and out of government can assert, rather than merely claim, what they see as a benefit of Hoosier residency.

The Bureau of Economic Analysis, one of the premier statistical agencies of the Deep State, annually estimates the Regional Price Parity (RPP) for each of our 50 states and the District of Columbia.

This might be thought of as a state-by-state Consumer Price Index which is not offered by the Bureau of Labor Statistics. Price parity means how much must be spent in one state to buy the same basket of goods as in another state.

Imagine a BoomBurger costs $3.45 in one state, but $4.50 to buy that same gut-wrencher in another state. Parity means that burgers can be had in the second state with an expenditure 1.30 times the expenditure in the first state (4.50 divided by 3.45).

Therefore, if you have an employee (or a child at school) in the second state, that person will need $32,500 if you have an employee (or child) that you’re paying $25,000 in the first state. This presumes both employees and children are consumers of BoomBurgers exclusively and are of equal value to you.

Indiana’s RPP is 91.82 meaning that it takes $91.82 in Indiana to buy what the average annual wage of American workers purchase for $100. Thus if your average worker/child moves from Yourtown, Indiana to Averageton, USA (zip code not available) you need to pay him/her 8.18% more so s/he can have the same buying power as residents in Yourtown.

In 2022, the average Hoosier worker had a wage of $67,088, 33rd highest in the nation. This level of income permits her/him to buy the same basket of goodies as $73,067 buys in Averageton, USA.

Think about that as a bonus of $5,979 for living in lower cost Indiana. That’s nearly $6,000 on which you don’t pay taxes. Of course, that won’t be true once we axe the personal income tax. But why confuse fantasies?

Let’s return to the worker/child who, in a desire to better him/herself, decides to move to Washington State where the average wage was $87,240, ranking 3rd highest among the 50 states.

You might decide to dissuade this optimistic, energetic dreamer from such a move. You would point out the RPP for Averageburgh, Washington is 109.85. That means earning $7,822 (9% of that $87,240 wage) just to have the same buying power as in good old Averageton, USA.

Hold off from disparaging Washington State, however, until we bring in another load of data next week.
Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers, and his views can be followed his podcast.

© 2024 Morton J. Marcus