Hot IT jobs: Why location matters

Investing in an IT career is like investing in real estate: In both cases location matters. While it's not all about location, location, location, compensation for the same IT job can vary widely -- sometimes by $50,000 or more -- depending on where you decide to work.  But the best paying job may not be the best value because cost of living factors can more than cancel out a higher salary.

Sure, you may feel like a hot shot after taking that six-figure job in San Francisco, but your colleague that took the same job in Savannah for tens of thousands less may be far wealthier.

Here's a quick visual tour, in six charts, that shows just how dramatically the cost of living index  -- and your choice of location -- can affect the relative value of job offers in two different cities.

Salary variances by city: The bigger the city, the bigger the salary

Let's start with the compensation variances. Robert Half Technology group provides hiring managers with national average pay ranges and projected pay increases for more than 70 different IT jobs. But markets are different in each metro area, so the recruiting firm uses "local variance" factors, or index numbers, for each city/metro area that are based on data from the Bureau of Labor Statistics and information from its own history of IT job placements. For example, New York has a variance factor of 1.41 (141%), which means the going rate for an IT job that pays $100,000 on average nationally would command $141,000 on Wall Street. Here are the 10 locations with the highest index numbers:

10bestcities_1.png

Source: Robert Half Technology, U.S. Department of Labor Bureau of Labor Statistics. City index figures are reflective of all industries and not specific to IT. For more locations see the 2013 Salary Guide.

Those are the cities with the highest positive variances. If you're in one of the locations below, however, you're in the bottom 10. As such, you're likely to make anywhere from 70% to 84% of the national average for your IT job.

10worstcities_0.png

Source: Robert Half Technology, U.S. Department of Labor Bureau of Labor Statistics. City index figures are reflective of all industries and not specific to IT. For more locations see the 2013 Salary Guide.

Is that a bad thing? Not necessarily, because the cost of living in Macon, Ga. is likely to be far less than living in New York. You might make less but have more spending power than that city slicker in Manhattan.

How the cost of living can turn the biggest salary into the smallest one

So, how do you factor that in? The Council for Community and Economic Research (C2ER) offers composite cost of living index numbers for some 300 cities and major metropolitan areas (You can get the latest quarterly report for as little as $75). The index is a composite number, a weighted average that takes into account housing, grocery, utilities, transportation, health care and the cost of other, miscellaneous services. As with the salary variances, 100 represents the average.

C2ER offered up the latest data it has on the subject, from the second quarter of 2012.

Here's a look at the city pay variance indices for the top 10 best paying and lowest paying cities (blue bars) side-by-side with the cost of living indices for each location (red bars).

10bestcli.png
10worstcli.png

Source: Robert Half Technology, C2ER. Note: Cost of living variance factors were not available for Sioux City, Iowa and Macon, Ga.

The two sets of numbers don't always track each other, and in some cases the cost of living index far outpaces the salary index. For this reason, a lower salary in one city may offer a higher standard of living than a much larger salary in another city. In San Francisco, for example, the average IT compensation is 1.36, or 136% of the national average, so an IT job with a national average pay of $100,000 would fetch $136,000 in the Bay City. In Pueblo, Col., however, the same position might bring $76,000.

Now let's look at the relative cost of living. In San Francisco the number is 163, or 163% of the national average. For Pueblo the cost of living index is just 88, or 88% of the national average.

You can adjust the salaries in each city to account for cost of living variations by dividing the salary by the raw index number and then multiplying by 100. When you do the math, the job in Pueblo  looks much more competitive.

 

San Francisco

Pueblo, Col.

Salary

$136,000

$76,000

Index

163

88

Cost of living adjusted net salary

$83,436

$86,364

So let's have another look at those 20 cities charted above. Below I re-sorted that list of 20 cities, charting the lowest and highest paying cities using both the Robert Half city salary variances and the C2ER cost of living indices. I assumed a job that commands a national average salary of $100,000, making adjustments for both the effect of the city salary variation and cost of living index variance. Then I regrouped them into the top and bottom 10 again. Here's how it shakes out - and look what city is now at the bottom?

top10cliadjusted_0.png
bottom10cliadjusted_0.png

Source: C2ER.

Clearly, this is a game changer. San Francisco and New York, which scored in the top 10 for compensation in the city variance, drop to the bottom 10 when the cost of living index is factored in.

Do these variance factors give an accurate portrayal of the real world? Salaries can vary from the indexes, and other factors can come into play. For example, there may be more room for advancement in Pueblo than in San Francisco - or vice versa. Also, you don't have to live where you work. For example, if you work in Manhattan (cost of living factor of 234%) you can choose that long commute from a relatively less expensive area like Stamford, Conn. (145%). And C2ER's numbers don't take into account differences in tax burdens between locations, which can be significant as well (According to the Tax Foundation's Facts and Figures Handbook, Connecticut has the highest tax burden per capita in the country; New York is number three while Colorado received a ranking of 18).

But clearly, you should consider salary offers in different cities within the context of the relative cost of living in each location.

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