Where is Standard of Living the Highest? Local Prices and the Geography of Consumption

About this event

There are large differences in mean income across US cities, but little is known about the levels of standard of living in each city—defined as the amount of market-based consumption that residents are able to afford. In this paper we provide estimates of standard of living by commuting zone for households in a given income or education group, and we study how they relate to local cost of living. Using a novel dataset, we observe all debit and credit card transactions, check and ACH payments, and cash withdraws of 5% of US households’ in 2014 and use it to measure mean consumption expenditures by commuting zone and income group. To measure local prices, we build income-specific consumer price indices by commuting zone. In the second part of the analysis, we endogenize income and estimate the standard of living that low-skill and high-skill households can expect in each US commuting zone, once we account for geographical variation both in cost of living and also in expected income.