2014-02-18

Worth Blogging

I posted this to Facebook, but it's worth putting it on my blog as well.

Donald Boudreaux at Cafe Hayek links to an article in today's Wall Street Journal discussing income inequality and the so-called "1%."

I received some anticipated skepticism around the idea that "$300,000 isn't that rich." That is, many people are under the impression that households that make $300,000 per year are incredibly wealthy. While adding a human element to the $300K number is out-of-scope for the WSJ article, I thought it would be useful to highlight what that number actually means.

I expect that I do not have a lot of readers in, say, New York City or San Francisco. If I do, then those readers will surely find this blog post rather unsurprising. For those of you who live in more rural areas or states with a lower cost of living, consider the following:

$300,000 of employment income per year in Manhattan is approximately equivalent to $161,000 per year in Portland, Oregon, according to this online cost of living calculator. What this tells you is that households that make $161,000 per year in Portland, Oregon would require an additional $139,000 in order to enjoy the same quality of life that they enjoy, were they to move to Manhattan.

Right away, some of you will see where I'm going with this. $300,000 seems like a large number to those of us who do not live in Manhattan, but $161,000 does not.

Let's look a little more closely. I happened to look up the median salary for school teachers - an obvious middle-class occupation - in Portland, Oregon. The number is reported to be $56,000 per year. What this means is that the median dual-income household of school teachers makes approximately $112,000 per year. That household requires an additional $49,000 per year to enter the so-called "1%."

What would get them there? Any of the following:

  • If one member of the household were to be promoted to school principal, that would do it.
  • An adult in-law staying under the same roof and working at, say, Costco, would also do the trick.
  • Multiple teenage children working part-time jobs.
  • A wise investment in an income property.
We often believe that "the 1%" consists of some nefarious gang of cognac-sniffing, world-domination-plotting, back-room old boys. But, as you can see, all it really takes is having an ambitious middle-class income in a city with a high cost of living.

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