The latest shiny object dangled by politicians is “affordability” — the ability of consumers to pay for the necessities for sustaining a “reasonable” lifestyle. To make the case, many point to the “cost of living” usually measured by an index, COL, which includes the cost of housing, food, utilities, education, transportation, energy, and taxes. COL by itself is an inadequate measure of the economic “pain” consumers experience because it does not account for the level of household income available to cope with living expenses.
We propose a more meaningful measure — the “Relative Affordability Pain Index,” which accounts for both cost of living and household income. COL varies widely by state, as does household income. RAPI is computed on a state-by-state basis by dividing the relative cost of living — the ratio of state COL to national COL (103.4) — by the relative household income, the ratio of state household income to median national income ($81,604). RAPI for the United States is equal to one — values of RAPI greater than one indicate less relative ability to pay — more “pain” — while values less than one indicate more relative ability to pay — less “pain”.
RAPI identifies the least and most affordable states, which are revealed by RAPI to be substantially different from those using the COL index. States with the highest pain index have the least relative affordability, while those with the lowest pain index have the most. The index demonstrates that those with the lowest “pain” have the highest incomes, even in high COL environments. Similarly, those with the highest “pain” generally have lower incomes, even though the corresponding COL is lowest among the states.
According to the RAPI, the six least affordable states (experiencing most economic pain) include West Virginia, New Mexico, and Mississippi, which are among the lowest cost states as measured by cost of living. The most affordable states, New Jersey, Maryland, and Connecticut — as well as Washington, D.C. — were among the highest-cost-of-living states but were identified by RAPI to be relatively affordable as a result of high relative household income. Consequently, they had a low RAPI — low relative pain.
Many politicians who make affordability an issue proffer that the only solution to affordability is to offer more government programs at the expense of higher taxes — their prescription is often more redistribution. They possibly assume as much because high pain index states tend to have higher income inequality. However, RAPI leads to the conclusion that one solution to relative affordability for states ranked at the affordability bottom lies in attracting jobs that pay higher wages.
A common measure of income inequality is the ratio of household income at the 90th percentile to household income at the 10th percentile (90/10 percentile ratio). Using this measure, this ratio for the U.S. is 13.5, with household income at the 10th percentile at $26,000 and the 90th percentile at $350,000. In D.C., for example, the 90/10 ratio is 30.2, with a household of $34,000 at the 10th percentile and $1,032,200 at the 90th percentile.
Income inequality is material to relative affordability — states with higher levels of inequality have a greater gap between high and low incomes, resulting in less affordability (greater pain) for those with household incomes below the state median and much worse for those at the bottom. Consider D.C., the most affordable “state” — the “pain” experienced by 10% of household income earners is 30.22 times that of 90% earners, as measured by RAPI.
RECLAIMING AFFORDABILITY: 2026 MIDTERMS MAY BE COST OF LIVING REFERENDUM
Many politicians cite a lack of “affordability” in an attempt to gain an advantage over their opponents while embracing policies that don’t improve it. State and local office holders have control over taxes and regulations, the effects of which impact most elements of affordability — some directly and others indirectly. In all states, but especially in high COL, high tax states (Hawaii, California, New Jersey, Massachusetts, D.C.), lower taxes would moderate an already favorable RAPI — reducing the “pain.” Yet in some states, local politicians propose to raise taxes while decrying the state of affordability (e.g., California, New York, Virginia, Rhode Island, Washington state).
High taxes and burdensome regulations increase the cost of many items — transportation, energy, and housing. Since state and local taxes are not as much of an issue in low COL states, a reduction in “pain” can be achieved through increased household income. State and local politicians have the ability to make their states more affordable (i.e., reducing the “pain”) by focusing on issues over which they have control — lowering taxes, reducing regulations, and — especially for low household income states — attracting good-paying jobs.
Paul Lerman retired from academia after 40 years of service as professor, business school dean, and provost. Throughout his career, he was a consultant to several Fortune-listed domestic and international corporations in finance, accounting, and decision support. Oren M. Levin-Waldman is a research scholar at the Global Institute for Sustainable Prosperity and the author of several books on wage policy. His forthcoming book is The Economic Origins of Political Polarization in the United States, published by Lexington Books/Bloomsbury. He last taught in the School for Social Policy and Practice at the University of Pennsylvania.