Part V of the Compensation Market Data Series now available!

With Spring quickly approaching, we thought it might be fun to shake things up a little and change course for this article. So, instead of compensation market data related to individual positions, we are going to look at some data related to the market in general – Cost of Labor and Cost of Living data, to be more specific.

We recently presented this data at an HR Lunch Meeting in Winchester (minus the Ft. Lauderdale information; I threw that in just for fun!) and it proved to be extremely illuminating.

Here are a few key terms you’ll need to know in order to interpret this data:

Cost of Labor: This references what labor costs in each city as compared to the US Average. In cities where the cost of labor is high, you have to pay employees more in order to recruit and/or retain them. This can be due to the city/area being a less than desirable location, containing only a small available workforce, or having a high concentration of difficult/complex positions within a single area. In cities where the cost of labor is low, it is normally because the area is highly desirable, there is a large pool of workers steadily available, or there is an even distribution of skilled and unskilled positions in the local market.

Cost of Living: This refers to the comparable buying power of a salary in relation to the national average. Areas with a higher cost of living are normally desirable locations or larger cities with a higher concentration of people.

US Average: For the purpose of these comparisons, the US Average/base salary is consistently 100%.


So, for example, let’s look at Lexington, KY. Let’s say an employee is making and/or worth $50,000 according to the US Average. In Lexington, where the cost of labor is 90.9% of the US Average, that employee might only be paid $45,436 for the same work. Meanwhile, the Cost of Living in Lexington as compared to the US Average for someone who makes $50,000 is 106.8%, meaning it costs 6.8% more to live in Lexington than in the ‘average’ US City. It would really take $53,417 to live in Lexington in the same manner it would take $50,000 to live in the ‘average’ US City.

People tend to be astounded by this discrepancy between the cost of labor and the cost of living, but there are logical reasons that the data presents the way it does. In Lexington, for example, you have a highly educated, fairly large pool of workers thanks to the University of Kentucky, so you can pay people a little bit less due to the competition and relative ease of hiring for most positions. In addition, the cost of living is so high because people want to live here (and who can blame them? It’s beautiful and there is a lot to do), so they are willing to work for a little less and/or pay a little more to make that happen.

For most employers, the most important category will be the Cost of Labor – this is what the majority of employers use to make adjustments to employee salaries and/or periodically move structures so they don’t begin to lag behind the market. While Cost of Living numbers are fascinating, they aren’t often practical for employers because they are so variable and can fluctuate so quickly due to any number of external factors.

Do you have any questions or see anything that surprises you here? If so, don’t hesitate to reach out – we love answering questions, and you can find my contact info below. And don’t forget to check back, as next time we’ll switch back into the Compensation Market Data mode and look at five positions within the Banking industry.

As always, you can reach HRG at (859) 514-7724, or send Allison an e-mail at

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