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October 08, 2008
Geographic Location Continues to Be Key Factor in Pay
A new study illustrates the significant impact that location has on your compensation.

In a press release announcing the results of its 2008 US Geographic Salary Differentials study, Mercer explained that a job with a salary of $30,000 nationally can pay as much as $37,023 (23.4% above national median) in San Francisco, CA while paying only $28,117 (6.3% below the median) in Birmingham, AL--representing a pay variation of 30 percent between these locations.

According to the survey, the 5 cities with the highest pay differentials for a job with a median national salary of $30,000 were:

  1. San Francisco, CA ($37,023) 23.4%
  2. New York, NY ($36,013)
  3. San Jose, CA ($36,000)
  4. Washington, DC ($31,180)
  5. Los Angeles, CA ($31,160)/Seattle, WA ($31,157) 10.5%
The 5 cities with the lowest pay differentials were:
  1. Little Rock, AR ($27,060) -9.8%
  2. Buffalo, NY ($28,113) -6.3%
  3. Birmingham, AL ($28,117) -6.3%
  4. Omaha, NE ($28,167) -6.1%
  5. Albuquerque, NM (28,300) -5.7%

The Mercer study compared local pay rates for more than 200 cities to national medians at different pay levels. According to Mercer, geographic pay variations were still evident for jobs with a median salary of $90,000, with cities such as Little Rock, AR ($83,670) and Omaha, NE ($86,980), at the lower end of the pay range, and New York ($104,370) and San Francisco ($103,970) at the top.

Mercer says that geographic differences in pay can prove challenging for large employers with multiple locations, particularly when an employee "transfers from a relatively high-salary area to a relatively low-salary area, or vice versa" Mercer explains.

In the press release, Mercer explained that employers should understand the difference between cost of living differentials--which "reflect the difference between localities in terms of the cost of goods, such as housing, groceries and transportation"--and the cost of labor, which "takes into account the difference between localities in terms of cash compensation for the same work."

"Organizations must also be concerned about pay levels for employees in the same location. Individuals moving from one location to another should be paid a locally competitive salary and expenses such as higher rents and home prices should be offset in the relocation package," said Cathy Shepard, principal at Mercer.

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