Cost of Living

What Is the Cost of Living?

The cost of living is the amount of money required to maintain a given standard of living in a specific place and time. It typically includes essentials such as housing, food, taxes, transportation, healthcare, and utilities. Because prices vary by location, the cost of living is commonly used to compare how expensive it is to live in different cities, states, or countries.

How the Cost of Living Is Used

• Individuals use cost-of-living data to evaluate job offers, relocation decisions, and household budgets.
• Employers and multinational corporations use it to determine salary levels, expatriate packages, and regional pay differentials.
• Governments and institutions use cost measures when setting social benefits, minimum wages, and cost-of-living adjustments (COLAs).

Cost-of-Living Indexes and Measurement

A cost-of-living index aggregates prices for a basket of goods and services to compare one area with another. Different organizations use different baskets and methodologies; common elements include housing, groceries, transportation, utilities, and personal care.

Examples:
– Mercer’s index surveys prices in hundreds of urban areas and includes a consumer basket (e.g., groceries, gasoline, clothing, haircuts, cafe coffee).
– The Economic Policy Institute’s Family Budget Calculator estimates the income a family needs to cover living expenses across thousands of U.S. counties and metro areas.
– The Consumer Price Index (CPI) and the CPI for Urban Wage Earners and Clerical Workers (CPI‑W) are used to measure inflation and determine COLAs for programs like Social Security.

Geographic Cost Comparisons

Most expensive U.S. urban areas (2023, Council for Community and Economic Research)
– New York (Manhattan)
– Honolulu
– San Jose, CA
– San Francisco
– New York (Brooklyn)
– Orange County, CA
– Los Angeles–Long Beach, CA
– Washington, D.C.
– Boston
– Seattle

Least expensive U.S. urban areas (2023, Council for Community and Economic Research)
– Decatur, IL
– Harlingen, TX
– McAllen, TX
– Tupelo, MS
– Ponca City, OK
– Muskogee, OK
– Conway, AR
– Florence, AL
– Kalamazoo, MI
– Lawton, OK

U.S. states and territories (ordered low to high, 2024)
– West Virginia
– Oklahoma
– Kansas
– Mississippi
– Alabama
– Arkansas and Missouri (tie)
– Iowa
– Michigan
– Tennessee
– Indiana
– Georgia
– North Dakota
– South Dakota
– Louisiana (tie)
– Texas
– Kentucky
– Nebraska
– New Mexico
– Ohio
– Illinois
– Montana
– Minnesota
– Pennsylvania
– Wyoming
– South Carolina
– Wisconsin
– North Carolina
– Virginia
– Delaware
– Nevada
– Idaho
– Puerto Rico and Colorado (tie)
– Florida
– Utah
– Arizona
– Oregon
– Maine
– Rhode Island
– Connecticut
– New Hampshire
– Washington
– Vermont
– New Jersey
– Maryland
– New York
– Alaska
– District of Columbia
– California
– Massachusetts
– Hawaii

Notable points
– Hawaii had the highest state-level cost-of-living index at the end of 2024; West Virginia had the lowest.
– New York City is consistently ranked as the most expensive U.S. city by several cost-of-living measures.

Cost of Living, Wages, and Policy

Minimum wage and living standards
– Rising living costs have fueled debates over federal and state minimum wages.
– Supporters of increases argue wages have not kept pace with productivity and living costs; opponents warn higher mandatory pay could raise consumer prices and employment costs.

State minimum wage changes
– Twenty-one states implemented minimum wage increases effective January 1, 2025: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont, Virginia, and Washington.

Cost-of-living adjustments (COLAs)
– COLAs are periodic increases to benefits (such as Social Security and Supplemental Security Income) tied to inflation measures.
– The Social Security Administration bases COLAs on the CPI‑W. Recent examples: an 8.7% COLA in 2023 (reflecting high inflation in 2022) and a 2.5% increase announced for 2025. The 2024 COLA was 3.2%.

Is the U.S. expensive to live in?
– The U.S. ranks among the higher-cost countries globally, with particularly high expenses for healthcare and higher education. However, living costs vary widely across U.S. regions and metropolitan areas.

Practical Takeaways

• Compare cost-of-living indexes when evaluating job offers or considering relocation; a higher nominal salary may buy less in an expensive area.
• Use family-budget calculators and local price surveys to estimate the income needed for your specific household and location.
• Watch CPI and COLA announcements if you rely on indexed benefits, and follow state-level wage changes that may affect local pay rates.

Sources

Organizations and data referenced include Mercer (Cost of Living City Ranking), the Economic Policy Institute (Family Budget Calculator), the Council for Community and Economic Research (cost-of-living index), the Missouri Economic Research and Information Center (state cost-of-living data), and the Social Security Administration (COLA and CPI-W information).