Date: October 1, 2015
Value of a Dollar – Podcast
Listen to the Podcast here:
Podcast: Session 12 – Real Value of a Dollar
Hello. This is Scott McDonald.
When you were a kid, your father probably said something like, “You kids don’t know the value of a dollar.” And he was probably right, in a way. After all, when a child is not working, it is hard for them to have anything that will illustrate how much effort went into earning a dollar. This is especially true when it comes to money that wasn’t earned. But that is a lesson for a different podcast. This this one, we are going to talk about the different amounts that a dollar can earn in one state over another.
We are often troubled by how some “experts” will consider that the United States will be one market. It is not. Even within a single state, the difference in the cost of living, cost of employment, and taxes will vary quite a bit. Within California, for example, the County and City taxes that are collected on top of State and Federal taxes illustrate just why Merced County and Orange County are so different. Even the thresholds that define poverty vary. But within the same state, the differences are mitigated by a state government with its taxing authority. For example, in Colorado there is a serious effort to have the northern part of the state succeed from the rest of the state. In Illinois, many residents in the southern part of the state feel that far too much power resides in Greater Chicago. Because the more rural parts of the state have so little representation in the Capital, residents complain that their interests are being ignored. Our observations on demographic trends supports this as people in the urban centers seem to be more homogenous in their economic and political tastes than the suburbs and rural areas. This is why in our “Tell Me About” State Briefings, we break out the Counties and Cities by population size, income, age and growth.
But when it comes to recognizing the differences between states, the challenges of choosing where to purchase a practice and where to start-from scratch are not matter of population growth or affluence alone. Demographers often talk about Median Household Income for the state as well as the tax burdens. We discuss these issues ourselves when we are breaking out the states. The Tax Foundation has released these statistics in a somewhat different but dramatic way. They have taken a $100 bill and done an analysis to show what that amount will buy in goods and services. This is instructive because a doctor earning $300,000 in one state and a classmate may be earning the same in another state, which of the two of them is growing richer, paying off their debts, and putting money aside could not be more different. As an example, a doctor practicing in New York State (not just the metropolitan areas) will have $86.66 in value for their $100. In nearby Ohio, they will be earning a value of $112.11. “Well, who wants to live in Ohio, anyway?” one might ask. Well, those who want to get the most out of the money that they earn will likely want to live there.
One would expect the differences to be significant when considering different parts of the U.S. The economic base of the region, for example, would tend to favor places that are more industrial. Unfortunately, most of the differences between locations is centered on artificial differences such as taxes and business regulations. Not surprisingly, those states with the highest taxes (like California with $88.57) can be in marked contrast with their neighboring states (like Nevada with $101.83 and Arizona with $101.94). Mississippi is almost 40% higher than Washington D.C. To put this another way, according to the study, a person who makes $40,000 a year after tax in Kentucky would need to have after-tax earnings of $53,000 in the District of Columbia. The study reminds us, however, that the relationship is not simply linear. Some states have high incomes but don’t have high prices. One of the most obvious examples of this is North Dakota.
All of this can be complicated when calculating the desirability to practice in a particular state. The average New Yorker pays significantly more in taxes than the average resident of Kansas. Prices in Kansas are lower which means that the wealth index between the states is even greater than one might suspect from static numbers. This tends to have a multiplier effect upon residents in Kansas that boosts their dollar’s value. But it gets even MORE complicated because of nationalizing statistics.
I have been an advocate of actually lowering the minimum wage because it has the effect of dramatically increasing employment rates. Almost without exception, those states with a lower minimum wage have a higher employment rate AND labor participation rate. This has the effect of making the actual number of people in a state not dependent upon public assistance programs. This has the subsequent effect of helping them to have more take-home pay because the costs of goods-and-services in their states go down. Still, the problem with nationalizing statistics such as the minimum wage is that it distorts the differences between states even more than normal. As pointed out, the citizens of Ohio have a higher earning value on their dollars than states like New York. But what would happen if we were to double the minimum wage in all of these states across the board? New York is already an expensive place to live. It would have the effect of increasing the take home pay of the smaller and smaller percentage of people employed. But in Ohio, because those dollars stretch even further because they have more value, it would make a 40% disparity closer to 60%.
Another way to consider these issues is to use the sliding definition of a “living wage.” In New Jersey ($87.64), the household earning $35,000 per year may be considered “working poor.” If we were to take another family in South Carolina ($110.25) and gave them the same $35,000 per year, they would be decidedly middle-class. They could afford a home in the suburbs and take a two week vacation every year. So, when a politician demands that we increase the “living wage” on a national scale, they are often condemning the states with the highest costs to greater unemployment than they would otherwise have (while also increasing unemployment elsewhere but boosting household income).
Let me editorialize a bit. In terms of healthcare, the largest line item is employment. When the costs to a business increase dramatically per employee, the logical thing to do to remain profitable is to reduce the number of employees. That is because the law demands that you pay people a minimum threshold of income regardless of their value to the practice. There is a point that automating practice becomes impossible. After all, healthcare is a business of people. With less care available to provide care, service necessarily suffers. While I cannot prove this beyond a doubt, it seems logical that those places that make the practice of medicine and dentistry less affordable are going to have the poorest service. Add to this a growing percentage of the patient base that sees healthcare as a right which implies that someone else should be paying for those services, and the quality of care will be reduced. But as a demographer, there is a simple but politically incorrect truth that doctors must keep in mind as they consider where to put their practices: The people with the sense of entitlement (and, therefore, who don’t believe they should have to pay for service) are not evenly distributed throughout the nation. While hard to provide, it is undeniable that some people are more inclined to preventive care, utilizing services rationally, and earning more per dollar than other places.
Our mission is to help you find those locations. It may not be easy but it is definitely desirable from the standpoint of having a successful and profitable career.