How to Adjust Salaries Based on Location
Practical resources, data, and knowledge to help ChurchSalary members adjust nationwide salaries based on several local variables.
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Localizing nationwide salary data to suit your location can be a daunting task. We know because you send us emails about it.
To help our members, ChurchSalary has cultivated a set of resources, maps, instructions, and links below. Gather the appropriate data. Contextualize it using personal knowledge of your community. Then filter it through your church’s compensation philosophy in order to localize salary data.
Table of Contents
- COLI versus COLA
- Orientation
- Basic Expenses
- Purchasing Power
- Income and Cost of Labor
- Conclusion
- Worksheet
- Glossary
COLI versus COLA
Before we get started, the acronyms COLI and COLA often get confused for one another, even though they are different things. The problem is that a cost of living index is designed to help you adjust salary or wage data based on the cost of living. It makes perfect sense then that people would describe this process as a “cost of living adjustment.” Unfortunately, they are not the same thing. One is trying to adjust salary data based on your location, the other is trying to adjust wages based on inflation.
Click the plus signs for added info and definitions or consult the glossary below.
The Cost-of-Living Index or COLI is an estimate of how much more or less it costs to live in a given community compared to the national average. There are different formulas for estimating a cost-of-living index used by different organizations. To learn more about the index used by ChurchSalary, click here.
A Cost-of-Living Adjustment or COLA typically refers to the annual process of adjusting salaries/wages to offset the impact of inflation. To learn more about inflation indexes used for COLAs, see our article on Making Sense of Inflation for COLA Raises.
This article will focus on how your church can use several data points, including a cost-of-living index or COLI estimate, to adjust nationwide salary data to adapt to the unique economy and wage requirements of your location.
Orientation
Why can’t you multiple the salary figures in your report by the COLI percentage for your county/city? “Isn’t that what a cost of living index is designed for?,” you may ask. Yes, you can do that.
However, for at least two major reasons, ChurchSalary recommends that go beyond this simple approach and consider multiple data points at different demographic levels.
First and foremost, as we explored in a recent article, differences in salary/wages in your community do not correlate one-to-one with COLI. Neither one directly causes or correlates with the other.
Second, the cost-of-living index is heavily influenced by housing and this cost varies wildly throughout your community. If your job pays you less, you can choose to live in a more affordable neighborhood or you may not be able to purchase a house at all.
As a result, the process of adjusting nationwide salary data to suit your location should involve answering three questions using data sourced from four different geographic levels:
Three Questions
- Basic Expenses: How much does it cost to live and thrive in your community?
- Purchasing Power: How far will an employee’s salary stretch in your area?
- Cost of Labor: Are workers paid more or less in your local economy than the national average? If so, why?
Demographic Levels
Demographic information about your community is captured and presented at different levels by the federal government. The five main levels at which you can and should gather data are:
- ZIP code
- Census tract
- County
- Metropolitan statistical area (MSA)
- *Place (City or Town)
Compare each of these levels with the nation as a whole or with each other (e.g., county versus MSA). You can figure out what the different levels or geographic designations of your community are using this website.
Basic Expenses
Before you start adjusting national averages, ask yourself: “Are we paying employees enough to afford housing, food, healthcare, transportation, and other basic expenses?” Below are some charts and websites that can help you quantify the cost of basic expenses in your community.
Map: Rent and Home Prices
The map below displays important housing and rent figures for each county and MSA: namely, a home and rent price range (25th, 50th, and 75th percentile), as well as the estimated monthly costs for homeowners
Note that the map below is based on the most recent 5-year ACS estimates (2018-2022) (adjusted for 2022 dollars). Because it is about a year old, we recommend that you update it using one of the two following resources.
- The NAR website (see explanation below).
- The FHFA Home Price Index (HPI) calculator
Resource: Median Home Values
Consult this National Association of Realtors (NAR) map or PDF to see adjusted* median home values for Q3 2023
Resource: Living Wage, MIT
The Living Wage Calculator, created by Amy K Glasmeier at the Massachusetts Institute of Technology, estimates “the hourly rate that an individual must earn to support his or herself and their family” in your community or local economy. The “living wage” is akin to a flourishing or thriving benchmark, not mere survival.
Hourly figures can be extrapolated to an annual salary by multiplying by 2,080 (i.e., 40 hours x 52 weeks = 2,080 hours per year.).
Resource: Mortgage Calculator
Plug any of the above home value numbers into Google’s simple mortgage calculator to estimate a monthly payment, and by extension an annual housing allowance (monthly costs x 12), for a pastor in your area.
Purchasing Power
Cost of Living
Explore the map below to see 2023 COLI figures for both your county and MSA, as well as the Q3 2022 Regional Price Parity Index (RPP)for your MSA (if data is available).
How to Contextualize COLI Data
At the most basic level, COLI is as an estimate of how far a salary will stretch or the purchasing power of an average national salary in your county or MSA.
Learn more about COLI: Unpacking the Cost of Living
Housing heavily impacts the COLI in your county. Because employees usually can find more afforable housing in nearby counties or neighborhoods, ChurchSalary recommends that you also consult the COLI figure for your metropolitan statistical area (MSA).
The COLI for your MSA reflects the maximum “stretch amount” an employee can expect from an average nationally comparable salary in your local economy.
Local Income and the Cost of Labor
Compensation in your local economy varies based on a lot of factors. However, as we have discussed elsewhere, it rarely increases or decreases at the exact same level as either COLI or the CPI-W (the inflation index that the Social Security Administration uses for their COLA). The map below displays several income measures at the county and MSA-level (with the percentage change between the national benchmark in parentheses) alongside ChurchSalary’s cost of labor estimate.
How to Contextualize Income Data
Every income and salary measure for your county or MSA should be contextualized based on personal knowledge of your community. Ask yourself, “does (or should) this number reflect the income of employees and pastors at our church?”
Additionally, bear in mind that when you are localizing nationwide salary data the percentage change between nationwide benchmark and your area (listed in parenthesis) is almost always more important than the raw number itself.
Median household income (MHI) reflects the income of all individuals who are living in a single house. This includes cohabitating (non-married) couples, multi-generational families, and non-related roommates.
Per capita income (PCI) reflects the total reported income divided by the population. The same factors that can distort MHI may also distort PCI in your community (see footnote above for more details).
Cost of labor is a measure of how much more (or less) employees are being paid in your area as a result of supply and demand. To estimate a generic cost of labor, ChurchSalary compared “All Occupations” salary data at the MSA or non-metropolitan level with the national average. This figure estimates how much higher or lower the average worker in your local economy is paid versus the national average.
To better understand and contextualize income data for your community, you may need to do more research. Visit DataUSA.io to learn more about the demographics of your community.
Pro tip:
Conclusion
To calculate a fair and reasonable localization adjustment, your church should:
- Capture data at relevant geographic levels.
- Discuss these numbers with the personnel team or church elders.
- Contexualize this data using personal knowledge of your community.
- Then, calculate a percentage that you think will best localize nationwide salary data for your community.
Whatever you decide, document your process and/or reasoning. Sharing this with your staff will foster trust and transparency.
ChurchSalary is committed to condensing this information and providing it to our members. We are working to incorporate more cost-of-living data in our salary reports. For now, you can find all of these resources on this page. We will update these figures on an annual basis or as frequently as they are published by various government agencies.
Bonus: Practical Example
Download this worksheet (PDF) containing discussion questions and a practical example designed to help your church calculate a cost-of-living adjustment.
Glossary
Click on the plus sign [+] to see a definition for each of the following terms or acronyms.