The relative buying power of the U.S. dollar in any two cities is very important when comparing the nominal dollar amounts of the salaries in those two cities. Those interested in this topic might, for example, ask about how the buying power of a $190,000 salary in Dallas, TX compares to the same nominal salary in Washington, DC. The question becomes, "Which location offers the most buying power?" The answer — and the dollars that accompany the salary with the greater buying power — often translates into discretionary income and lifestyle options for new lawyers.
To illustrate purchasing power differentials, NALP has analyzed salary data from the Class of 2020 Employment Report and Salary Survey in conjunction with cost-of-living data from the Council for Community & Economic Research (C2ER) to rank cities on the basis of a Buying Power Index (BPI). The BPI was calculated using New York City's overall median reported private practice salary for the Class of 2020 and cost of living as the benchmark. New York City's BPI is thus 1.00. BPIs for other cities demonstrate how much buying power the median reported law firm salary for the Class of 2020 in that city provides compared with the New York City median. Table 1 below shows the BPI calculated for 93 cities for which at least 10 law firm salaries were reported for the Class of 2020, and for which cost-of-living information was available in the fourth quarter of 2020. Those cities with a BPI greater than 1.0 offer more purchasing power compared to New York City and those with a BPI below 1.0 provide less purchasing power. In well over half of the cities included in the table, the buying power of the median salary exceeds that of New York City's when relative costs of living are factored in. For example, the median reported law firm salaries in Columbus, OH and Birmingham, AL are about 60% that of New York City's, but nonetheless each offers about 50% more buying power than does the New York City salary. As another example, the buying power of the median reported salaries in Omaha, NE and Salt Lake City, UT exceed that of New York City's even though these cities' median salaries are about half that of New York.
Additionally, salaries in any two cities with similar salaries but different BPIs can be compared. For example, the difference in purchasing power between $190,000 in Boston, MA and $190,000 in Houston, TX can be determined. The BPI in Boston is 1.597 and the BPI in Houston is 2.546. This means that the Houston salary offers 59% more purchasing power than the identical salary in Boston [2.546/1.597] — 1.59 or 59%. Or, viewed the other way around, the Boston salary offered about two-thirds of the purchasing power of the Houston salary [1.597/2.546] x 100 = 63%.
Likewise, the BPI can be used to compare any salary in a listed city (not just the median) with that for New York City because the salary required to provide the same purchasing power as the $190,000 New York City salary does not change. For example, in Austin, TX that figure is about $82,000. If the actual salary obtained in Austin is $160,000, it will purchase nearly twice as much as the $190,000 salary in New York City [$160,000/$82,000] = 1.95 or 95% more purchasing power.
Table 1. Class of 2020 Buying Power Index for Cities with at Least 10 Reported Salaries
|City||Class of 2020 Median Reported Law Firm Salary ($)*||Salary ($) Required to Yield New York City Buying Power*||Buying Power Index||# of Law Firm Salaries Reported|
|St. Louis, MO||135,000||70,230||1.922||49|
|Los Angeles, CA||190,000||118,010||1.610||476|
|Santa Monica, CA||190,000||118,010||1.610||13|
|Costa Mesa, CA||190,000||119,690||1.587||27|
|Kansas City, MO||106,250||76,160||1.395||66|
|New Haven, CT||130,000||95,480||1.362||14|
|Grand Rapids, MI||100,000||75,520||1.324||27|
|Fort Worth, TX||92,000||74,235||1.239||18|
|San Francisco, CA||190,000||154,165||1.232||258|
|New Orleans, LA||107,000||87,625||1.221||36|
|Des Moines, IA||85,000||70,710||1.202||16|
|Salt Lake City, UT||96,500||83,855||1.151||38|
|Baton Rouge, LA||80,000||77,525||1.032||22|
|Las Vegas, NV||84,000||82,495||1.018||11|
|Newport Beach, CA||120,000||119,690||1.003||15|
|New York City, NY||190,000||190,000||1.000||2,006|
|San Antonio, TX||75,000||76,960||0.975||27|
|Orlando/Winter Park, FL||72,000||75,280||0.956||58|
|Oklahoma City, OK||65,000||69,425||0.936||27|
|San Diego, CA||102,110||116,485||0.877||139|
|Mt. Pleasant, SC||70,000||80,170||0.873||10|
|Little Rock, AR||65,000||77,445||0.839||24|
|Fort Lauderdale, FL||75,000||95,160||0.788||23|
|Coral Gables, FL||70,000||91,230||0.767||25|
|Long Beach, CA||82,750||118,010||0.701||18|
|Beverly Hills, CA||77,500||118,010||0.657||12|
*Note: For ease of presentation, these figures are rounded to the nearest $5.
Sources: Cost-of-living information comes from the Council for Community & Economic Research (C2ER) and its Cost of Living Index for the fourth quarter of 2020. Median law firm salary data is from NALP's Jobs & JDs, Class of 2020.
Notes on Resources and Methodology for Calculating the Buying Power Index
The Buying Power Index (BPI) uses as its benchmark New York City's median starting salary and cost of living. Cost-of-living information was obtained from the Council for Community & Economic Research (C2ER) and its Cost of Living Index for the fourth quarter of 2020. C2ER is a non-profit professional organization of research staff of chambers of commerce, economic development organizations and agencies, and related organizations. C2ER obtains information through the participation of local Chambers of Commerce or similar organizations. C2ER uses this information to develop a cost-of-living index relative to a U.S. average of 100. The index measures differences in the costs of goods and services; however, C2ER does not attempt to incorporate tax differentials into its index. The index is not available for metropolitan areas whose Chamber(s) of Commerce do not participate. Median salary information for each city was obtained from analysis included in NALP's Jobs & JDs, Class of 2020 report.
These indices were used to create an adjusted cost-of-living index for each city, with New York City, rather than the U.S. average, set as 1.00. This adjusted index thus indicates the dollar amount equivalent to a dollar in New York City when the cost-of-living differential is considered. For example, the C2ER Cost of Living index for Indianapolis, IN is 90.9. Comparing this to New York City's index of 237.0 means that about $0.38 is needed in Indianapolis to obtain a purchasing power equal to that of $1.00 in New York City (90.9/237.0 = 0.3835).
This adjusted index was then used to determine how the New York City median private practice salary would have to be scaled to provide comparable purchasing power in each city. Using the Indianapolis example, the lower cost of living means that a salary of about $73,000 is equivalent in purchasing power terms to the $190,000 salary in New York ($190,000 x 0.3835 ? $72,900).
This purchasing power equivalent was then compared to the actual median reported private practice salary in each city to determine a BPI. The closer the BPI is to 1.00, the closer the salary comes to providing purchasing power on par with New York City. Continuing with the Indianapolis example, the BPI of 1.578 means that the $115,000 median salary has about 58% more purchasing power than the New York salary ($115,000/$72,875 = 1.578).