measuring the cost of living; indicators are imperfect...

Measuring the Cost of Living Indicators are Imperfect Tools

by Brian N Rae and James R Wilson

he cost ofliving in Alaska and in its various far-flung communities is a topic brought before Alaska Department of Labor economists almost daily

Of all the acronyms that have been created by this nations governmental bureaucracy few are better known than the CPI the Consumer Price Index N early every American who earns and spends dollars has some idea as to what the CPI is and how it is used Still many misconceptions abound concerning this and other indicators which attempt to compare the costs ofliving among various places and times

Cost of Living Comparison Process Not Straight Forward

Preparing a cost of living comparison among different cities seems straightforward enough Isnt it a simple task to fmd the costs of a home in different cities the

Tobie 7

Consumer Price Index - Urban Consumers All Items and Selected Components

US amp Alaska

Food amp All Items All Items Leamp8 Shelter Housing Medical Beverage

us Anchoraie US Anchorai us Anchoraie us Anchorage Us Anchoraie annual Penent annual Percent annUliI Percent annual Perltent annual annual annual Ilnnual annual annual

Year average change averalle chanie Mverage change Bvcrago change average averaio average averSl8 averagege

1960 296 34 4 1965 315 64 353 26 1970 388 232 411 164 1975 538 387 571 389 1980 824 532 855 497 829 847 811 859 749 788 867 897 1981 909 103 924 81 910 98 920 86 904 925 829 869 935 91 3 1982 965 62 974 54 962 57 963 47 96 9 982 925 91 8 97 3 972 1983 996 32 992 18 99 8 37 999 37 99 5 990 1006 997 995 997 1984 1039 43 1033 41 1039 41 1038 39 1036 1027 1068 1055 1032 1032 1985 1076 36 1058 24 1070 30 1075 36 1077 1030 1135 1109 1056 1062 1986 1096 19 1078 19 1080 09 ll12 34 1109 1026 1220 1278 109 1 llO8 1987 ll3 6 36 1082 04 1116 33 ll51 35 1142 975 130 1 1370 1135 113 1 1988 1183 41 1086 04 ll5 9 39 1178 23 1185 954 1386 1458 1182 1138

1al half 1988 1168 1084 1144 1170 ll72 958 1365 1430 1165 1135 1al half 1989 1227 51 1109 23 1204 52 1214 38 1217 958 1463 1531 1236 1164

Noles The moal currenl Coilliumer Price Index data available fo r Alaska is for the first half of 1989 For comparabilily data for lhe firsl balfof 1988 is given lo show lhe percentage change over lbe year

Dala unavailable for componenls belween 1960 and 1979

Alaska Economic Trends October 1989 9

costs of food of medical care and all the things an average person consumes Unfortunately there are many different things to consider when comparing costs of living And each survey can look at costs in only one way

This article explains how the imperfect science of measuring cost of living is gauged using two types of surveys spatial and temporal Further this art icle explains five different cost of living surveys the Consumer Price Index the American Chamber of Commerce Researchers Associations Intercity Cost of Living Index the

Fig ure 7 - - ---------- - - - - - ------ -----

Consumer Price Index - Urban Consumers US Be Anchorage (1982-1984 =100)

CPI 120

1 10

100

90

80

70 - Ichorage --- -us

6e 78 79 130 81 5 83 8 4 85 8 6 8 7 88

YOEII

Source Alaska Department of Labor Research amp Analysis Section

Figure 2

Consumer Price Index - Anchorage All Items Be Selected Items (1982-1984 =100)

CPI

140 -

20

100

80

OO~-~-~-~ ~-~~-~-L--L---~

7R 79 8~1 81 P2 8 3 B4 5 86 8 88

YeOI - All ltern5 - Htiu~ g f DOC) amp Be erogl

Source US Bureau of Labor Statistics

University of Alaskas Cost of Food at Home study Runzheimer Internashytionals Living Costs Index and the Alaska School District Profiles and Differential Study

Starters Glossary Market Basket Reverse Pricing Forward Pricing Spatial Survey TeDlporal Survey

One of the first considerations in creating a survey is determining the target population the people for whom the cost of living index is being computed If a narrowly defined population is chosen the survey will apply only to a small percentage of the population On the other h and if a broader population is chosen the results might not accurately reflect the cost of living for any individual

Th e types of goods and services purchased or market basket affects the usefulness of the index If the selected market basket reflects the pur hasing pattern of everyone in the target population there is no concern This is rarely the case however The further the market basket diverges from an individuals purchases the less applicable the index for that individual

There are two types of cost of living surveys - spatial and t emporal In a spatial survey costs of living in different locations are compared at one point in time In a temporal survey changes in the costs ofliving over time are computed for one location

When conductinga spatial survey there are two ways to prepare the market basket both are imperfect Forward pricing is one option Here a single market basket is decided upon and then the goods and services are priced in each community included in the survey A problem arises if not all the same goods and services are available in each community or if consumption pattern s are d ifferen t among communities Still forward pricing is the one used in all but one of the surveys later explained in this article

The second pricing technique is known as reverse pricing One base community is selected and then other communities are compared to this base The unique aspect of this technique is that a different market basket


reflecting local consumption patterns is created for each community The School District Differential Study surveyis the only survey later explained in this article which uses the reverse pricing technique

A market basket must al so be determined for temporal surveys In these surveys price fluctuations must be recorded over time Any inflexibility of the market basket creates problems for either temporal or spatial surveys Ifrelative prices (the r atio of the price of one item to another) are different among places in a spatial survey or if they change over time in a temporal survey so too will consumption Ifthe price of one item rises relative to another then consumption ofthe more expensive item will fall Any changes in consumption will not however be reflected in the market basket For example if the market basket assures that cer tain amounts of beef and chicken are purchased then price fluctuations wont change the amounts purchased even if the price of one rises and the oth er declines (A comparable problem occurred with the CPI during the early 1970s when gasoline prices skyrocketed and consumption fell still the market basket assumed that a certain quantity of gas continue to be purchased)

No Study Shows True Cost of Living

These are a few of the factors which must be addressed when quantifying cost of living differences between communities or over time No study is perfect N one really shows the true cost of living To some degree they are all compromises Still the studies are a useful tool to those trying to understand how much more expensive living costs are in one area compared to another

The CPI the Nations Most Widely Used Measure

The CPI is the most widely used cost of living measure in the US and itis the only temporal cost of living measure explained in this article The most important point to remember is that the CPI measures the change in costs in one area over time

The CPI uses prices during a base time period and compares them with other

time periods (In this article the base time period is 1982 through 1984 The average of prices during the base period is given a value of 100)

Comparing CPI figures over different time periods produces a rate of change itdoesnothing though to quantify the cost of living

Foy specific questions concelIling variOUIJ lJlllVeys readers can contact the aut hors oHhis article at the Alaska Department ofLabors Remiddot search amp Analysis Section or they can contact anyone of the following groups

Alice Klein American Chamber of Commerce Researchers Assn co Louisville Area Chamber of Commerce One Riverfront Plaza Louisville KY 40202

(Annual subscription rate pound r the quarterly ACCRA report $75

Dennis O Taylor Runzheimer amp Co Living Cost Division Runzheimer Park Rochester WI 53167

(Runzheimer Living Cost Standards is available for purchase through the company)

For information on the Cost ofFood at Home for a Week survey contact

Marguerite Stetson co University of Alaska Cooperative Extension Service Fairbanks AK 99701

For information on the Alaska School District Profiles amp Differential Study contact

Legisla tive Budget amp Audit Committee Alaska State Legislature PO BoxV J uneau AK 99Sn

For information on the Consumer Price Inde~ contact

US Department of Labor Bureau of Labor Statistics 71 Stevenson Street PO Box 3766 San Francisco CA 94119


Table 2

American Chamber of Commerce Researchers Association Intercity Cost of Uving Index

Ranking of 20 Highest Index Cities 1st Quarter 1989

Total Trans- Miscelmiddot City index Grocery Hou sing Utilities portation Health laneous

Nassau-Suffolk NY 1567 1133 2456 1826 1286 1445 1216 KODIAK AK 1527 1526 1728 1833 1154 1861 1352 KETCHIKAN AK 1448 1390 1450 1395 1376 20B7 13Bl Washin gton DC 1298 1075 1696 1272 1365 1241 1127 J UNEAU AK 1294 1256 1127 1470 1286 1999 1213 Orange County CA 1290 1048 2166 711 1090 1276 1086 FAIRBANKS AK 1280 1256 1135 1275 1251 1952 1258 Montpelier-BlUTe VT 1276 1110 1901 1272 1052 1037 1065 Ventura County CA 1274 1048 213 B 663 1149 1166 1073 Philadelphia PA 1272 1076 1437 1701 1124 1349 1150 Manchester NH 1257 1068 1694 1329 1214 1173 1056 Naperville IL 1255 1024 1777 1037 1171 1097 1156 San Diego CA 1245 1028 1864 784 1253 1230 1082 Los Angeles County CA 1244 1048 1962 704 1084 1291 1083 San J ose CA 1230 1034 1963 735 1056 1351 1033 Schaumburg n 1203 1136 1629 1034 1133 1118 1041 Springfield MA 1199 1051 1676 1132 1065 10B8 1042 ANCHORAGE AK 1184 1284 1171 932 1097 1592 1170 Wilmington DE 1178 1097 1272 1381 990 1169 1166 Temecula CA 1163 983 1551 1002 1102 1300 1035

Ranking ofAlaska Cities by Category

Anchorage 18 3 35 175 29 5 5 Fairbanks 7 4 48 13 6 3 3 J uneau 5 4 50 4 3 2 4 Ketchikan 3 2 16 5 1 1 1 Kodiak 2 1 9 1 13 4 2

Source Interci ty Cost of Living Index (268 cities) 1st Quarter 1989 American Chamber of Commerce Researchers Association

The CPI shows changes over time so a single CPI number is meaningless Looking at Figure 1 the plotted lines dont mean as one might firs t think that the average cost of living in Anchorage in 1988 was less than the V S average in 1988 It is the slope of the line that is important The slope shows that the Anchorage CPI rose less than did the V S CPI between 1987 and 1988 Likewise the Anchorage inflation rate was below the V S average rate between 1978 and 1983 This is shown in Figure 1 by the

steeper slope ofthe V S average line as compared to the Anchorage line

CPI Usefulness Limited in Alaska

As mentioned earlier all indices are compromised for various reasons The CPI is no exception Anchorage is the only Alaska city included in the CPI because of the high costs involved in colle ct ing and processing the information This limits the CPIs usefulness for people outside Anchorage

if consumption patterns or relative prices are different from those in Anchorage

For example much of the state has seen real estate prices fall from their 1985 levels but Anchorage was the area of the state hardest hit Table 1 and Figure 2 break out s everal componen ts ofthe cpr Noteworthy is how the housing component in Anchorage has fallen since its 1985 high Since housing comprises such a large component in the index this has


~----------------------------------------------------------------- Tob~3

American Chamber of Commerce Researchers Association Intercity Cost of Living Index

1st Quarter 1989

Miscelmiddot All laneou8

items Grocery Transmiddot Health goods amp index items Housing Utilities portstion care services

West ANCHORAGE AK 1184 1284 1171 932 1097 1592 10 FAIRBANKS AK 1280 1256 1135 1275 1251 1952 1258 JUNEAUAK 1294 1256 1127 1470 1286 1999 1213 KETCHIKAN AK 1448 1390 1450 1395 1376 20S7 13S1 KODIAKAK 1527 1526 1728 1833 1154 1861 1352 Salt Lake City UT 959 948 847 890 969 1056 1046 San Diego CA 1245 1028 1864 784 1253 1230 1082 Seattle WA 1064 1083 1086 630 1174 1407 1069

Southwest Albuquerque NM 1023 958 1064 1003 1091 1049 1001 Dallas TX 1038 1062 1023 1061 1115 1067 988 Phoenix AZ 1027 983 1056 932 1015 1176 1035

Midwest Minneapolis MN 1017 953 1123 1023 1060 1021 954 OmahaNE 919 878 882 876 1083 872 925 Saint Louis MO 989 997 968 1088 1000 999 958

Southeast Augusta GA 987 960 947 995 980 995 1028 Birmingham AL 988 949 951 1102 96 5 928 1018 Louisville KY 964 1020 909 986 993 871 972

Atla nticlNew England Baltimore MD 1073 1034 1170 1064 1084 1135 1007 Philadelphia PA 1272 1076 1437 1701 1124 1349 1150 Washington DC 1298 1075 1696 1272 1365 1241 1127 Wilmington DE 1178 1097 1272 1381 990 1169 1166

Source Intercity Cost of Living Index (268 cities) 1st Quarter 1989 American Chamber of Commerce Researchers Association

held down the overall CPI For those living in Anch orage the CPI will accurate ly reflect the change in their cost of living only if their mortgage or rent payments have followed the decline in the housing index For those who pu rchased a h ome several years ago a n d are locked into a mortgage their cost ofliving has ri sen more in line with the CPI index fo r a ll items less housing (See T able 1)

Chamber of Commerces Index - a Shopping List of Goods and Services

The American Chamber of Commerce Researchers Association (ACCRA) produces a quarterly report which compares relative price levels of goods an d services for roughly 265 cities in the US For each city in the study a standardized list of 59 items is priced during a set period of time The items priced are intended to represent the

spending patterns of a typical midshymanagemen t level household After the pricingis finished items are aggregated by category and the index numbers are produced The in dexs All Cities Averageis always 100 for each reporting period

Th e ACCRA ind ex is based on a shopping list of goods and services Beca use ofth e limited sample of items priced however differences in th e index amounting to less than three (such as


Tab le 4


1st Quarter 1989

l ib 112 gal H ouse Total Office ground whole lib p urchase energy I gal Hospital visit

beef milk coffee price cost gas room doctor

West ANCHORAGE AK $149 $181 $336 $117000 $10622 $097 $40600 $40 00 FAIRBANKS AK 147 183 322 102480 14724 112 30500 5300 JUNEAU AK 151 174 289 112250 16608 130 38000 4280 KETCHIKAN AK 162 176 348 152667 16708 130 42800 6900 KODIAKAK 176 199 357 161023 21191 126 59000 4133 Sal t Lake City UT 118 105 264 83814 9432 086 26860 3260 San Diego CA 146 105 249 183000 8752 088 37480 37 23 Seattle WA 147 116 302 102370 6480 086 30840 4030

Southwest Albuquerque NM 120 126 273 106658 10804 088 25594 2690 Dallas TX 149 145 223 96497 11776 087 25475 3214 Phoenix AZ 151 103 258 100639 10197 081 27150 3488

Midwest Minneapolis MN 106 112 286 106700 11140 090 29200 2691 Omaha NE 102 110 231 86560 9221 088 19920 2840 Saint Louis MO 152 141 270 96100 12219 080 23011 3200

Southeast Augusta GA 156 122 234 119705 12988 081 21960 3700 Birmingham AL 126 135 238 90400 11839 083 21540 2860 Louisville KY 141 136 255 84020 10443 081 25220 2440

AtlanticlNew England Baltimore MD 141 107 283 103200 11241 092 25220 30 20 Wilmington DE 199 108 272 272050 14442 099 39000 4350 Philadelphia PA 159 115 271 213800 21546 106 25000 3900 Washington DC 184 106 276 119580 19185 085 39750 3840

ALL CITIES MEAN 131 121 265 94236 11004 090 21642 26 30

Note All cities mean is the mean price of an 268 cities in the 1st quarter 1989 survey

Source Intercity Cost of Living Index (268 ci ties) 1st Quarter 1989 American Chamber of Commerce Researchers Association

129 vs 130) are statis ti cally insignificant Differences in the index amounting to a number greater than three show an actual cost of living differen ce Percentage differences measured by the ACCRA index are only a reasonable indication and not a precise measure of the extent of any

difference Although taxes are known to be a part of the actual cost of living no attempt is made to include state or local taxes in the data


that the ci ties of Boston and New York had the highestACCRAindexes These two major cities aren t included in the current data

The Alaska cities included in the ACCRA study have the top ratios for five of the ACCRA indexs six major components CSeeTable 2)Kodiak had the highest indexes for groceries and utilities And Ketchikan was tops for transportation h ealth care and miscellaneous

Index Shows Alaska Housing Costs Arent High

Housing costs have always been thought of as exceptionally high in Alaska However the ACCRAhousing index shows thatfoUT of the five studied Alaska citi es (Kodiak being t h e exception) dont have high housing costs In fact it wasin the housing cost index that the Alaska cities werefotmd to have the lowest rankings On a related note the Anchorage utilities index was lower than about two-thirds of the cities in the ACCRA study

Some comparative figures for Alaska cit ie s and other US cities are presented in Tables 3 and 4 Table 3 shows the cost of living indexes while Table 4 contains actual prices for some ofthe goods and services in the ACCRA study

The ACCRA index measures - at one point in time - the difference in cost of living between a specific city and the All Cities Average

Unlike the CPI the ACCRA index doesnt measure change within a city over time it measures the difference in costs betweenan individual city and the average of all cities Since the sample of cities changes over time results arent directly comparable for different time periods However since the number of citiesenteringor leaving the survey each quarter is small the index does provide an intuitive way to see if an individual citys cost ofliving is becoming increasingly higher or lower than the All Cities Average

Anchorages ACCRA index in the 1st quarter of 1988 was 1295 Its 1st quarter 1989 index was 1184 Thus th e cost of living in Anchorage was as

--- -------- Table 5

Cost of Selected Items in Various Alaska Communities

March 1989

Ratio of Ratio of Cost of food cost food cost

food to Anchorage to us 1 wee k average average

US (lverage 1 $9400 103 nla Anchorage 9108 nla 97 Bethel 14458 159 154 Cordova 13409 147 143 Delta 12368 136 132 Dillingham 15040 165 160 Fairbanks 9484 104 101 Galena 15619 171 166 Gambell 16575 182 176 Haines 11810 130 126 Homer 11528 127 123 J uneau 9449 104 101 Kenai 10615 117 113 Klawock 13384 147 142 Ketchikan 9343 103 99 Kodiak 11665 128 124 Mat-Su 9517 104 101 McGrath 14453 159 154 Nome 15254 167 162 Petersburg 12063 132 128 Sitka 10544 116 112 Teller 15841 174 169 Tok 12202 134 130 Wrangell 10675 117 114

Notes Costs are for a family of four with elementary school children

All sales taxes are included in food and u tility costs

1 Items in US survey are not directly comparable to those in Alaska survey

Source Cost of Food a t Home for a Week March 1989 University of Alaska Cooperative Extension Service US Dept of Agriculture and SEA Grant Cooperating

Five Alaska Cities in Chambers Data

Five Ala ska ci t ies are present ly included in the quarterly ACCRA data - Anchorage Fairbanks Juneau Ketchikan and Kodiak According to the lat est available numbers (1st Quarter 1989) four of these five Alaska

cities are among the studys 10 highest cost areas (See Table 2) Anchorage the Alaska city with the lowestACCRA index had a cost ofliving roughly 18 higher than the All Cities Average Only one area in the ACCRA study shyNassau-Suffolk NY - had an ACCRA index higher than all five Alaska cities One year ago the ACCRA study showed


Tob~6-----------------------------------------------------------------------------

Cost of Food at Home for a Week 1978-1989

Percentage of Percentage of Percentage of 11Anchorage Anchorage Anchorage

Anchorage Fairbanks a verage Juneau average Bethel average

Sept 1978 $7667 $8415 1098 $7372 962 $11405 1488 Dec 1979 8580 9192 1071 7755 904 12044 1404 11Sept 1980 8844 9054 1024 8592 972 13087 1480 Sept 1981 8669 9847 1136 9395 1084 13866 1599 Sept 1982 7730 9209 1191 9998 1293 12550 1624 Sept 1983 8166 8379 1026 8862 1085 12830 1571 Sept 1984 8422 9126 1084 9166 1088 13654 1621 III Sept 1985 8906 9008 lOLl 10661 1197 13813 1551 Sept 1986 8725 9061 1039 8765 1005 13796 1581 Sept 1987 8890 8512 957 882 993 14081 1584 Sept 1988 9099 9474 1041 9295 1022 13757 1512 J une 1989 9595 9674 1008 9758 1017 14289 1489 III


All sales taxes are included in food prices

1 Data unavailable

of 1st quarter 1989 11 closer to the All Cities Average than the prior year We cann ot infer fr om th is that Anchorage costs have declined Instead the All Ci ti es Average may have increased or both the Anchorage and the all cities costs may have risen by different amounts The ACCRA index only allows us to state th at the differ ence is le ss Over the last year the indexes for both Fairbanks and Juneau havent changed significantly

The ACCRA index methodology is a fo rward pricing scheme Its designed to jibe with spending patterns found in major American urban centers The data collected in more atypical areas is an attempt to match the items found in the larger average areas This process tends to ignore typical living costs actually found in the more atypical areas The items priced in the ACCRA study are th ose which are most iikely to be fo und in the greatest number of areas studied For examp le the transportation costs in the ACCRA study include items such as bus fare price of a gallon of gasoline and automobile wheel balancing

For many areas in Alaska such as J uneau Ketchikan and Kodiak a typ ical livi ng co s t may include expensive transportation in these communities air travel is needed just to leave home Air fare which may be a luxury or just one of many options for travel elsewhere in the US is an essential service in most of Alaska By th is example its seen that the ACCRA index at times understates the true cost differences between some of Alaskas citi es and the Al l Cities Average

VA Measures the Cost of Food Bought for Alaska Homes

Comparing the cost ofliving between communities in Alaska is made difficult by several factors Many goods and services available in larger cities arent readily available in some rUTal areas The buying habits of urban r esidents an d people of rural communities are different Th is means that there are different typical consumer patterns in urban and rura l areas which in



Percentage of Percentage of Percentage of Percentage of Anchorage Anchorage Anchorage Anchorage

Nome average Kodiak a verage Kenai average Tok average

$11885 1550 1 1 $8248 107 6 1 1 12462 1452 1 1 10041 1170 1 1 13114 1483 $9942 1124 12084 1366 $10882 1230 15027 1733 1 1 1 1 11480 1324 14904 1928 1 1 1 1 1 1 13014 1594 10494 1285 8698 1065 1 1 14207 1687 11597 1377 87 97 1045 12166 1445 15241 1711 10817 1215 9147 1027 11619 1305 14204 1628 10549 1209 9278 1063 12418 1423 14796 1664 10439 1174 9695 1091 11751 1322 14769 1623 11668 1282 9553 1050 11969 1315 155Ql 1616 12447 1297 10312 1075 13435 1400

Source Cost of Food at Home for a Week Sept 1978 to Mar 1989 University of Alaska Cooperative Extension Service US Dept of Agriculture and SEA Grant Cooperating

tum complicates attempts at making cost of living comparisons Also making Alaska cost ofliving comparisons more difficult are the effects of subsistence activities by some households

The University of Alaska in cooper ation with the US Depart men t of Agriculture publishes a quarterly report of food prices to measure how much it costs to feed various-sized families in different locations in Alaska The report also contains comparative information on some utility and fuel costs The Cost of Food atRome survey is not a comprehensive measure ofthe cost of living for Alaska communities However it does provide some comparativeyardstick for locations not covered by any other cost of living measure

Table 5 shows the cost of food for a week for a family of four plus other select costs for23 Alaska communities In Anchorage the state s l argest metropolitan area the study reports four percent lower cost s than the national average This is misleading because the market basket of food is

different in the national study than in Alaska The Alaska market basket substi tutes the less perishable andmore widely available canned foods for the more expensive fresh foods used in the lower 49 states

Anchorage Food Costs Lowest Highest Costs in Isolated Towns

The food cost study can be put to best use by comparingvarious communities food costs within Alaska The March 1989 figures showed Anchorage having t h e lowest costs of all the areas surveyed Food costs in Alaskas other larger cities are fairly comparable to those of Anchorage

Prior examinations ofthe food cost data have shown that the most expensive cities are the smaner and more isolated communities This continues to be true In places such as Bethel Kotzebue and McGrath the costs are 50 to 70 higher than in Anchorage

Table 6 is a time series of costs for the last 12 years This table shows the

difference in the cost of food between Anchorage and other Alaska communities Italso shows the changes in costs over time within each of the communities

The ACCRA index numbers indicate a greater difference in food costs between Alaska and the US than does the Cost of Food at Home for a Week study This may be due partly to the limited number of items priced in the ACCRA survey Its certainly due in part to aforementioned differences in the food cost market basket There are also differences in the groups the two surveys are measuring The ACCRA survey is designed to measure the budgetofa mid-management executive whereas the food cost study is designed to show the minimum cost of providing a sound diet for families of different sizes


Table 7

Runzheimer Report - Living Cost Standards June 1988 Results

(assuming recent home purchase)

Total P et of Pet of Pet of Pet of Mise Pet of living standard Trans- standard standard Goods amp standard (includes standard costs city portation city Housing city services city savings) city

New York NY $41699 130 $6782 179 $17259 157 $9577 103 $2519 120 ANCHORAGE AK 37404 117 4507 119 15771 143 10696 115 1926 91 Washington DC 37050 116 4417 117 15461 141 9680 104 2145 102 San Diego CA 36558 114 4670 123 15284 139 9137 99 2222 106 FAIRBANKS AK 35842 112 4436 117 13685 124 10863 117 1926 91 Boston MA 35262 110 4716 125 13074 119 9321 101 2005 95 JUNEAU AK 35240 110 4288 113 12883 117 11022 119 2076 99 STANDARD CITY U SA 32000 3782 10992 9272 2105 Seattle WA 31746 99 4334 116 10460 96 9464 102 2390 114 Houston TX 31322 98 4468 118 10061 92 9406 101 2145 102 Mobile AL 29435 92 3571 94 8407 76 8784 95 2476 118

Source Runzheimer International Living Cost Division

1988 Runzheimer Study Conducted for Alaska Department ofLabor

Runzheimer International studied the cost ofHving in 272 areas of the coun try during June 1988 for the Alaska Department of Labor Like most ofthe other surveys discussed in this article Runzheimers was conducted with a forward pricing scheme A typical family was created they lived in an average city on an income of $32000 per year

This $32000 income a figure which determined their standard of HYing constitutes the main difference between this study and all others in this article_ The Runzheimer study takes into account the amoun t of income necessary to maintain this standard of living in all other cities in the survey and doesnt directly address the differences in the cost s of various items (See Table 7) The Runzheimer study also takes into account income and property t axes elements not accounted for in other surveys

Three scenarios were calculated to compare the levels ofincome needed to maintain this standard of living in different cities in the lower 49 and in Anchorage Fairbanks and Juneau The main difference in the three scenarios

was the time of home purchase - shywhether the owner hadjust purchased a home or instead had purchased it one or three years earlier Like the CPI the income levels needed to maintain the base lifestyle in Alaska were greatly influenced by this housing component Those wh o h ad just purchased a hom e n eed ed a significantly lower income than those with an older mortgage since home pri ces have fallen so much in recent years The information in Table 7 assumed a recent home pur chase causing a reduction in the amoun t of income required to maintain the base standard of living in Alaska in comparison with most other areas of the country

Alaska School District Study Uses Reverse Pricing Scheme

The Alaska Legislative Budget and Audit Committee while analyzing the distribution offunds to school districts commissioned a study to quantify the costs of providing educational services in all areas of Alaska Resul ts of the study were based on a 1985 survey of 25 00 househol ds taken in 91 communities and 2100 retail outlets in 54 communities Two separate cost diffe rentials were determined the differing costs sustained by personnel


Table 8

Alaska School Districts Household Price Differentials 1985

Recreation Total Transpor- amp enter- Miscelmiddot personnel

Houwing Food tanon Clothing tainment Meillcal laneou differential Southern Southea8t

Annette Island 085 110 082 110 105 115 131 101 Craig 085 110 082 110 105 115 131 101 Klawock 085 110 082 110 105 115 U31 101 Hydab~ 085 110 082 110 105 115 131 101 Southeast Island 085 110 082 110 105 115 131 101

Urban Southeast Ketchikan 095 109 083 123 126 115 109 102 Wrangell 065 104 104 115 106 109 098 100 Petersburg 076 115 094 112 105 109 112 100 Sitka 085 118 094 ll0 097 104 117 102 Juneau 101 107 093 114 103 103 113 103

Central amp Northern Southeast Rake 084 126 082 ll0 108 101 125 105 Chatham 069 125 100 110 109 104 U9 107 Hoonah 053 125 090 110 120 090 122 103 Pelican 103

Other Southeast Haines 069 121 102 110 140 103 111 102 Skagway 083 119 099 107 140 103 098 103 Yakutat 096 158 106 095 133 090 129 121

Prince William Sound Cordova 090 129 112 141 137 112 129 118 Chugach J J 113 Valdez 087 123 111 110 117 106 108 106 Copper River 105 127 110 096 118 122100 113

Anchorage Urban Influence Area Anchorage (Base District) 100 100 100 100 100 100 100 100 Matanuska-Susitna 078 100 104 114 100 099 096 100 Kenai Peninsula 076 112 109 114 109 087 1 17 101 Kodiak 081 118 122 112 107 097 121 106

Alaska Peninsula amp Aleutian8 Adak 1f 132 Pribilofs 123 137 149 104 106 097 139 132 Aleutian Eas t 132 Unalaska 123 137 149 104 106 097 136 130 Dillingham 112 142 140 111 118 107 161 130 Bristol Bay 102 168 140 111 118 107 167 135 Lake amp Peninsula 135

135 Southwest 1 1 Yukon amp Kuskokwim Delta

Lower Kuskokwim 141 147 141 118 127 107 139 139 139Yupiit 1

Kashunamiut 139 Lower Yukon 111 165 155 097 103 117 157 138 St Marys 111 165 155 097 103 117 157 138

Interior Region Kuspuk 105 161 144 110 ll6 101 147 137 Iditarod 105 150 144 116 108 101 123 132 Galena 105 149 142 122 108 101 141 132 Yukonmiddot Koyukuk 105 158 162 122 108 101 136 139 Yukon Flats 105 162 136 1 23 143 094 154 139 Tanana 102 159 155 093 108 101 132 132

Interior Road System Alaska Gateway 1 1f 1 110 DeltaGreely 092 110 122 122 118 114 121 110 Nenana 089 133 128 097 118 108 112 114 Railbelt 1 1 114

Fairbanks 092 102 116 122 108 094 106 103 Arctic

North Slope 139 171 159 112 154 118 163 153 Northwest Arctic 134 159 145 099 119 108 144 141 Nome 136 160 128 100 106 117 154 141 Bering Straits 113 164 141 096 112 131117 134

1 Data not available

Source Alaska Sch ool District Profiles and Differential Study Legislative Budget amp Audi t Committee Alaska State Legislature

Alaska Economic Tren ds October 1989 19

Summary of Cost of Living Indexes

Survey Type Population

Strength

Weakness

Survey Type Population Strength

Weakness


Weakness

Survey Type Populatiori

Strength

Weakness


Weakness

Consumer Price Index (CPl) Temporal forward pricing All urban consumers (CPl-V) or urban wage earners and clerical workers (CPIW) Measures costs in one location over time the only available inflation measure Can only compare the change in the cos -ofliving for different locations only available for Anchorage

ACCRA Cost of Living Index Spatial forward pricing Mid-management level family

Compares many locations to a national average No tracking of changes over time lacks con istency in price collection

Cost of Food at Home Study Spatial forward pricing Lower income individuals or families Compares minimum food costs for smaller Alaskan communities excluded from other studies No good comparison to national data only looks at food costs not entire cost ofliving

Runzheimers Living Costs Index Spatial forward pricing Family with $32000 in income living in average cost city Considers income needed to maintain a specific standard of living in different cities includes taxes Doesnt directly address differences in prices

Alaska School District Profiles amp Differential Study Spatial reverse pricing Average consumer in each school district Considers ~nsumption pattern in each area studied good single site comparison to Anchorage A one- time study using 1985 data

About the authors

Brian Rae Is a labor economist with the ResearchampAnalysis Section Administrative Services Division

Alaska Department of Lobor He is based in Junea u

James R Wilson is an economist with the same Juneau office

working for the di stricts and the costs of maintaining the facili ties For the purposes of this article only the living cost s of sch ool employees will be addressed

This study is the only one to use the reverse pricing scheme Consumption patterns were determined for each community and a unique market

basket was prepared Each market basket was then priced in Anchorage which served as the base for comparison (Reverse pncmg maintains the standard of living of the study area instead of imposing the base communitys standard of living upon it )

Table 8 shows the ratio of a commodity groups costs in various geographic areas as they relate to the same items costs in Anchorage in 1985 Anchorage had the lowest costs in the state for most commodities Its noteworthy that housing was one of the few commodities less expensive outside of Anchorage

Because the reverse pricing scheme was used each commodity group has a different weigh t when the overall cost of living differential is computed For example the survey found that 34 of expenditures in Anchorage went for items in the housing grouP whereas Wrangell residents for example spent only 23 of their income on housing Since Wrangel1 housing costs were only 65 as much as comparable housing in Anchorage and a smaller overall share of Wrangell residents total expenditures went to housing costs for housing comprised a much smaller portion of the Wrangell budget than the Anchorage budget

Summary

Determining the cost of living in an area and how it differs among distinct geographic areas and over time is not as straigh tforward as one would wish Although there are no perfect cost of living in dices several differen t studies do exist If spatial indices (place-tomiddot place comparisons) are needed several differen t studies can assis t in answer ing the cost ofliving question For temporal studies (those looking at changes over time) the CPI is the only available index

One ofthe fi rst steps in usi ng a cost of li ving study is in de termi ning its strengtl1s and weaknesses


costs of food of medical care and all the things an average person consumes Unfortunately there are many different things to consider when comparing costs of living And each survey can look at costs in only one way

This article explains how the imperfect science of measuring cost of living is gauged using two types of surveys spatial and temporal Further this art icle explains five different cost of living surveys the Consumer Price Index the American Chamber of Commerce Researchers Associations Intercity Cost of Living Index the

Fig ure 7 - - ---------- - - - - - ------ -----

Consumer Price Index - Urban Consumers US Be Anchorage (1982-1984 =100)

CPI 120

1 10

100

90

80

70 - Ichorage --- -us

6e 78 79 130 81 5 83 8 4 85 8 6 8 7 88

YOEII

Source Alaska Department of Labor Research amp Analysis Section

Figure 2

Consumer Price Index - Anchorage All Items Be Selected Items (1982-1984 =100)

CPI

140 -

20

100

80

OO~-~-~-~ ~-~~-~-L--L---~

7R 79 8~1 81 P2 8 3 B4 5 86 8 88

YeOI - All ltern5 - Htiu~ g f DOC) amp Be erogl

Source US Bureau of Labor Statistics

University of Alaskas Cost of Food at Home study Runzheimer Internashytionals Living Costs Index and the Alaska School District Profiles and Differential Study

Starters Glossary Market Basket Reverse Pricing Forward Pricing Spatial Survey TeDlporal Survey

One of the first considerations in creating a survey is determining the target population the people for whom the cost of living index is being computed If a narrowly defined population is chosen the survey will apply only to a small percentage of the population On the other h and if a broader population is chosen the results might not accurately reflect the cost of living for any individual

Th e types of goods and services purchased or market basket affects the usefulness of the index If the selected market basket reflects the pur hasing pattern of everyone in the target population there is no concern This is rarely the case however The further the market basket diverges from an individuals purchases the less applicable the index for that individual

There are two types of cost of living surveys - spatial and t emporal In a spatial survey costs of living in different locations are compared at one point in time In a temporal survey changes in the costs ofliving over time are computed for one location

When conductinga spatial survey there are two ways to prepare the market basket both are imperfect Forward pricing is one option Here a single market basket is decided upon and then the goods and services are priced in each community included in the survey A problem arises if not all the same goods and services are available in each community or if consumption pattern s are d ifferen t among communities Still forward pricing is the one used in all but one of the surveys later explained in this article

The second pricing technique is known as reverse pricing One base community is selected and then other communities are compared to this base The unique aspect of this technique is that a different market basket























Table 2















~----------------------------------------------------------------- Tob~3


1st Quarter 1989















Tab le 4


1st Quarter 1989








ALL CITIES MEAN 131 121 265 94236 11004 090 21642 26 30














--- -------- Table 5


March 1989












Tob~6-----------------------------------------------------------------------------







1 Data unavailable










$11885 1550 1 1 $8248 107 6 1 1 12462 1452 1 1 10041 1170 1 1 13114 1483 $9942 1124 12084 1366 $10882 1230 15027 1733 1 1 1 1 11480 1324 14904 1928 1 1 1 1 1 1 13014 1594 10494 1285 8698 1065 1 1 14207 1687 11597 1377 87 97 1045 12166 1445 15241 1711 10817 1215 9147 1027 11619 1305 14204 1628 10549 1209 9278 1063 12418 1423 14796 1664 10439 1174 9695 1091 11751 1322 14769 1623 11668 1282 9553 1050 11969 1315 155Ql 1616 12447 1297 10312 1075 13435 1400













Table 7














Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary

























Table 2















~----------------------------------------------------------------- Tob~3


1st Quarter 1989















Tab le 4


1st Quarter 1989








ALL CITIES MEAN 131 121 265 94236 11004 090 21642 26 30














--- -------- Table 5


March 1989












Tob~6-----------------------------------------------------------------------------







1 Data unavailable










$11885 1550 1 1 $8248 107 6 1 1 12462 1452 1 1 10041 1170 1 1 13114 1483 $9942 1124 12084 1366 $10882 1230 15027 1733 1 1 1 1 11480 1324 14904 1928 1 1 1 1 1 1 13014 1594 10494 1285 8698 1065 1 1 14207 1687 11597 1377 87 97 1045 12166 1445 15241 1711 10817 1215 9147 1027 11619 1305 14204 1628 10549 1209 9278 1063 12418 1423 14796 1664 10439 1174 9695 1091 11751 1322 14769 1623 11668 1282 9553 1050 11969 1315 155Ql 1616 12447 1297 10312 1075 13435 1400













Table 7














Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary




~----------------------------------------------------------------- Tob~3


1st Quarter 1989















Tab le 4


1st Quarter 1989








ALL CITIES MEAN 131 121 265 94236 11004 090 21642 26 30














--- -------- Table 5


March 1989












Tob~6-----------------------------------------------------------------------------







1 Data unavailable










$11885 1550 1 1 $8248 107 6 1 1 12462 1452 1 1 10041 1170 1 1 13114 1483 $9942 1124 12084 1366 $10882 1230 15027 1733 1 1 1 1 11480 1324 14904 1928 1 1 1 1 1 1 13014 1594 10494 1285 8698 1065 1 1 14207 1687 11597 1377 87 97 1045 12166 1445 15241 1711 10817 1215 9147 1027 11619 1305 14204 1628 10549 1209 9278 1063 12418 1423 14796 1664 10439 1174 9695 1091 11751 1322 14769 1623 11668 1282 9553 1050 11969 1315 155Ql 1616 12447 1297 10312 1075 13435 1400













Table 7














Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary




Tab le 4


1st Quarter 1989








ALL CITIES MEAN 131 121 265 94236 11004 090 21642 26 30














--- -------- Table 5


March 1989












Tob~6-----------------------------------------------------------------------------







1 Data unavailable










$11885 1550 1 1 $8248 107 6 1 1 12462 1452 1 1 10041 1170 1 1 13114 1483 $9942 1124 12084 1366 $10882 1230 15027 1733 1 1 1 1 11480 1324 14904 1928 1 1 1 1 1 1 13014 1594 10494 1285 8698 1065 1 1 14207 1687 11597 1377 87 97 1045 12166 1445 15241 1711 10817 1215 9147 1027 11619 1305 14204 1628 10549 1209 9278 1063 12418 1423 14796 1664 10439 1174 9695 1091 11751 1322 14769 1623 11668 1282 9553 1050 11969 1315 155Ql 1616 12447 1297 10312 1075 13435 1400













Table 7














Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary












--- -------- Table 5


March 1989












Tob~6-----------------------------------------------------------------------------







1 Data unavailable










$11885 1550 1 1 $8248 107 6 1 1 12462 1452 1 1 10041 1170 1 1 13114 1483 $9942 1124 12084 1366 $10882 1230 15027 1733 1 1 1 1 11480 1324 14904 1928 1 1 1 1 1 1 13014 1594 10494 1285 8698 1065 1 1 14207 1687 11597 1377 87 97 1045 12166 1445 15241 1711 10817 1215 9147 1027 11619 1305 14204 1628 10549 1209 9278 1063 12418 1423 14796 1664 10439 1174 9695 1091 11751 1322 14769 1623 11668 1282 9553 1050 11969 1315 155Ql 1616 12447 1297 10312 1075 13435 1400













Table 7














Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary




Tob~6-----------------------------------------------------------------------------







1 Data unavailable










$11885 1550 1 1 $8248 107 6 1 1 12462 1452 1 1 10041 1170 1 1 13114 1483 $9942 1124 12084 1366 $10882 1230 15027 1733 1 1 1 1 11480 1324 14904 1928 1 1 1 1 1 1 13014 1594 10494 1285 8698 1065 1 1 14207 1687 11597 1377 87 97 1045 12166 1445 15241 1711 10817 1215 9147 1027 11619 1305 14204 1628 10549 1209 9278 1063 12418 1423 14796 1664 10439 1174 9695 1091 11751 1322 14769 1623 11668 1282 9553 1050 11969 1315 155Ql 1616 12447 1297 10312 1075 13435 1400













Table 7














Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary







$11885 1550 1 1 $8248 107 6 1 1 12462 1452 1 1 10041 1170 1 1 13114 1483 $9942 1124 12084 1366 $10882 1230 15027 1733 1 1 1 1 11480 1324 14904 1928 1 1 1 1 1 1 13014 1594 10494 1285 8698 1065 1 1 14207 1687 11597 1377 87 97 1045 12166 1445 15241 1711 10817 1215 9147 1027 11619 1305 14204 1628 10549 1209 9278 1063 12418 1423 14796 1664 10439 1174 9695 1091 11751 1322 14769 1623 11668 1282 9553 1050 11969 1315 155Ql 1616 12447 1297 10312 1075 13435 1400













Table 7














Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary




Table 7














Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary




Table 8























Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary






Strength

Weakness


Weakness


Weakness


Strength

Weakness


Weakness







About the authors









Summary




measuring the cost of living; indicators are imperfect...

Documents