First the metric we looked at in our recent top ten rankings––which has gotten a lot of attention––is private sector employment earnings per capita. I don’t know of any private sector employer who pays more for an employee because of their cost of living. Does your employer pay more for an employee in the same job based on whether they own an expensive home or car or not? We don’t. Private sector employers pay for productivity. Someone can do the job as well for less they get hired, increasingly anyplace on the planet. The only reason for private sector employers to pay more in the top ten states is that they are getting something for their money they can’t get elsewhere.
Second, cost of living is only one half of the equation. The other half is what you get for your money. If costs were all the mattered we would all drive a Hyundai and none of us a Lexus. We start with a belief that consumers are rational, not dupes. They don’t over pay for housing or other basics when they choose a place to live and work. When they pay more they calculate what they are getting for their money.
Family A may prefer to live in low cost Mississippi and family B may prefer to live in high cost Massachusetts. But when both decide where to live they think not just about cost but about what they are getting for their money.