It’s not exactly news that the people making the most money live in cities. Metropolitan areas offer access to labor, infrastructure, and capital. In turn, corporations base their major offices and highest paying roles in those areas.
Unfortunately for corporations, once they plant roots in a city it’s extremely difficult and costly to move. For an individual however, the cost to move is de minimis, especially if you negotiate a relocation package (which you absolutely should; a post for another day). Most people really undervalue the leverage this creates in favor of the individual. Failing to understand this leverage can easily cost you a million dollars over the course of your career.
Let me explain. Like any market, the labor market is subject to the forces of supply (able and willing people) and demand (open roles). However, each corporation exists in a relatively static market place, in say a handful of corporate offices around the country. Their demand doesn’t change – either a role is open or it is not – but the supply for those jobs is limited to those within the geographic area. And what happens when demand for something is static and supply is limited? The price goes up. Fundamentally, this is why salaries are higher in metropolitan areas – there is lots of demand and a limited supply to fill it. The difference can be extreme. For instance, the median earnings of a computer software developer in Lubbock, Texas is only $49,600 while in Santa Cruz, California it is $135,000 – nearly three times higher and a difference of $1M after just 12 working years!
This is, of course, a gross over-simplification. Yes, salaries are higher in major metros, but so is the cost of living. Moreover, not all cities cater to the same industry. An aspiring financial analyst may find plenty of opportunity in New York, London or Chicago but relatively little in Miami, Dallas or Denver. The trick then is finding the city in which your desired profession over-indexes in potential income and under-indexes in cost of living. Helpfully, the Hamilton Project created an interactive tool that documents various occupations and their associated income potential in areas all over the United States indexed against cost of living and income taxes. The Brookings Institution did a great write up of the tool, highlighting how powerful this data can be. Among other insights, they found that after adjusting for cost of living, locations in the Northeast and Midwest tend to feature the highest earnings adjusted for cost of living:
Use this tool to discover the areas in which your expertise will net you the best income at the lowest cost. You could easily use this information to maximize your labor market leverage and drive upwards of a 20% increase in pay, even for a lateral move in the job market.
This mobility leverage works not just during the accumulation phase of your career, where you should be maximizing your income through every means available to you, but also in the later parts of your career where you may be semi or fully retired. This principal is called geo-arbitrage, with the idea being to make your money in the areas that pay the most and spend your money in areas that cost the least. This can take on a more complicated form, like working part time as an American web developer in an ultra low cost area like South East Asia. Or it could be as simple as spending your working years making it rain in New York City, then retiring outside a golf course in Florida. Regardless, the principal is the same and when deployed thoughtfully throughout your career it represents an enormous boon to your ability to achieve and maintain financial independence.
Usually, the tough part is simply having enough independent spirit to move in the first place. Whether it’s leaving your hometown for the first time or asking your family to uproot, moving takes courage. Most people can’t or won’t make the jump. Only 11% of American’s moved in 2017, the lowest mobility rate ever recorded. This only increases the mobility leverage available to those with the ambition to use it. Your willingness to move around the globe is critical to successful career management, and part of a larger growth mindset you need to succeed.
The path is quite literally laid out for you – the only question is, will you take it?