Hey, Prof. Krugman: Lowering Workers’ Housing Costs Raises Their Real Earnings!

As the many “pay calculators” available on the Internet that can help you figure out how far your wage or salary would go in another locality attest, people seeking a better job or a first job routinely factor in cost of living in assessing how good an offer from an employer really is.  Consequently, employers in high-cost jurisdictions know they must offer a higher nominal pay rate to persuade a desired applicant to take a job than would be the case to attract the same applicant in a lower-cost jurisdiction.

In short, lowering workers’ costs for housing and other necessities raises their real earnings, and it is impossible to say, in a meaningful way, whether worker earnings in a locality or state are high, average or low without first assessing the relative cost of living in the region.

No economic training is required to understand this fact.  It just requires a modicum of life experience and common sense.  And yet the concept that the regional cost of living and pay rates can’t be assessed independently of one another seems perpetually to elude Princeton economist, pundit, and Nobel Prize winner Paul Krugman.

Time and again in commentaries like the August 2014 column linked below, Krugman assumes employee pay and regional cost of living are completely independent variables.  By making this clearly false assumption, Krugman can label high-cost forced-unionism states like New York, Connecticut and California as “high wage,” even though employees in those states are far less apt to earn enough money to own their own homes than employees in Texas and other low-cost Right to Work states at which the professor sneers.

If Krugman did the sensible thing and examined how regional employee compensation and regional living costs affect one another, he would see that the ongoing massive migration of the U.S. population from high-cost states (all of which permit compulsory union dues) to low-cost states (the vast majority of which protect the Right to Work) is a major positive for the U.S. economy as a whole as well as for the employees who are moving and their family members.

It will be even better for the U.S. economy, of course, when Congress repeals the provisions in federal law that empower Big Labor to corral employees into unions unless they are protected by state Right to Work laws.  But until that day happens, continuing migration out of the jurisdictions where union officials retain the privilege to extract forced dues from employees will mitigate the damage done by federal labor law.

You don’t have to have a doctorate in economics to understand that the price of housing in a locality affects the compensation employers have to offer to attract and retain good workers in that locality. Yet that obvious point seems to have eluded Princeton economist and New York Times columnist Paul Krugman for many years. Image: EPA

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