Question

2. Suppose once you graduate you get two job offers, one in Austin and another in Miami. The job in Austin pays annual salary of $110,000 and the job in Miami pays $108,000. You look up CPI tables published by BLS and find out that CPI in Austin area in 2020 is 215 and CPI in Miami area in 2020 is 230. a. You like Miami more than Austin but the pay is an important decision variable as well. Considering differences in cost of living, if you could negotiate, how much more on top of the current offer would you ask to Miami employer so that they are just matching Austin’s offer? b. If you decided to move to Austin, how much would you need to earn in Austin to have the same standard of living as you could for $108,000 in Miami, considering differences in cost of living?

Answer 1

Answer:

Given that:

Suppose once you graduate you get two job offers , one in Austin  and another in Miami

(a) You like Miami more than Austin but the pay is an important decision variable as well.  

Pay in Miami = $108,000

CPI in Miami = 230

CPI in Austin = 215

Calculate the Miami pay in terms of Austin dollars -

Miami pay in terms of Austin dollars = Pay in Miami * (CPI in Miami/CPI in Austin)

Miami pay in terms of Austin dollars = $108,000 * [230/215]

Miami pay in terms of Austin dollars = $115,534.86

So,

The Miami pay in terms of Austin dollars is $115,535

Difference = Miami pay in terms of Austin dollars - Actual pay in Miami

Difference = $115,535 - $108,000 = $7,535

Thus,

The person would ask Miami employer to pay $7,535 more so that it can match Austin offer.

(b) If you decided to move to Austin, how much would you need to earn in Austin to have the same standard of living as you could for $108,000 Miami, considering differences in cost of living

Pay in Austin = $110,000

CPI in Austin = 215

CPI in Miami = 230

Calculate the Austin pay in terms of Miami dollars -

Austin pay in terms of Miami dollars = Pay in Austin * (CPI in Austin/CPI in Miami)

Austin pay in terms of Miami dollars = $110,000 * [215/230] = $102,826.08

Thus,