The question, then, is whether wages in those cities are keeping pace. Washington, D.C., has one of the highest costs of living in the country, but its median wage of $85,168 more than compensates for those expenses. Conversely, places like McAllen and El Paso, Texas, have costs of living below the national average, but also suffer from low incomes.
Residents of some of the cities with the highest incomes also enjoy other economic benefits. Des Moines, Washington, D.C., and Madison, for example, weathered the recession relatively well, with unemployment rates of 6.1 percent or lower in recent months. Meanwhile, California and Florida, which account for 4 of the 10 cities with the lowest adjusted incomes, also have some of the toughest housing markets in the country, with home prices plummeting and a large inventory of foreclosed homes. Of course, the economic picture is neither uniformly bleak nor rosy in many cities. Honolulu, for example, has a low unemployment rate of 4.6 percent, and New York's 7.7 percent unemployment rate is also well below the national average of 9.0 percent.
Housing is the largest component of a city's COLI, accounting for roughly 30 percent of a city's composite score. According to Nathaniel Baum-Snow, Stephen Robert Professor of Economics at Brown University, housing prices can vary widely from city to city due to simple supply and demand. He uses New York City as an example of a place where it's difficult to increase the supply of housing. "There's a lot of regulation on new construction [in New York City] that makes it costly to build new housing," says Baum-Snow. He also points out that land can come at a greater premium in some places than others: "It's always more expensive to repurpose land than to build on virgin land that was just a cornfield before," he says. In other words, increasing the supply of housing in a dense metro area like New York City or Los Angeles is more difficult than building new housing around Ogden, Utah, or Des Moines.
Baum-Snow also adds that places like New York City and Honolulu have high costs of living in part because people are willing to pay top-dollar to live there for non-economic reasons, like the excitement of the Big Apple or the gorgeous weather.
It is important to note that COLI figures have limitations. The COLI is not a precise arithmetical figure; that is, a city with an index of 120 may not have prices that are exactly 20 percent higher than those in a city with a COLI of 100. Likewise, median household income figures are estimates. Therefore, the resultant adjusted median income figures are also approximations. For example, the adjusted median income of $58,555 in the Raleigh-Cary, N.C., is $14 higher than that in the Omaha, Neb., metro area, but that difference is negligible.
Methodology: The above rankings include metropolitan areas with populations of 500,000 or greater, according to the U.S. Census Bureau's 2009 American Community Survey. Median household income figures also reflect the 2009 American Community Survey. COLI data is from the Council for Community and Economic Research's 2009 ACCRA Cost of Living Index. For any given multiple-city metro area, the COLI for the largest city was used. For example, for the Atlanta-Sandy Springs-Marietta metro area in Georgia, the COLI for Atlanta was used. ACCRA Section 1 COLI data was used whenever possible. For metropolitan areas not listed in Section 1, Section 2 data was used. For metro areas not listed in either section, the COLI figure from the nearest available metropolitan area was used. For example, Ogden-Clearfield, Utah, was reflected in neither ACCRA's Section 1 nor Section 2 listings. Therefore, the cost of living index for Salt Lake City, Utah, was used to adjust nearby Ogden's median income. Those cities for which a nearby COLI was used are marked in the above lists with an asterisk. To adjust incomes, the median income figure from the Census Bureau was divided by the COLI figure, then multiplied by 100.