For almost 2 decades now, there has been a widening divide between large dynamic and mostly coastal cities in the US and the rest. This has helped fuel increasing inequality in both pay and wealth which some believe has manifested itself politically and helped lead to the current disconnect.

Researchers have been studying this divide for some time and it has led to some fascinating research. The Economist, cited research by Harvard Economist Richard Glaeser which looked at the productivity of workers in large cities compared to the rest and broke down how this compares when certain factors like education, experiment and IQ are controlled for.

Edward Glaeser, an economist at Harvard University, has shown that urban density increases workers’ productivity and minimises their carbon footprints. Americans who live in big metropolitan areas are, on average, more than 50% more productive than those who live in smaller metros. This holds true even for workers with the same education, experience, working in the same industry and boasting the same iq. Much the same is true in other rich countries. In poorer ones the advantages of city life are even greater.

You can visualize this disparity in a chart that showcases output per worker by metropolitan statistical area below.

Source: Bloomberg

It’s not only workers, companies as a whole tend to be more productive in large cities. Not to be biased because I live here, but the shining example of a large city that attracts productive, competitive and smart people is New York City.

A League if it’s Own

It may be known for finance, but the New York City economy is diversified and massive. Depending on how you count it, the New York City metro area has a GDP of $1.8 to $2 trillion. This is large enough by itself to rank in the top 10 richest countries in the world, falling somewhere between Canada and Brazil. It’s an economy larger than South Korea with half the population.

Outside of finance, industries such as media, technology, journalism, insurance, fashion, design and architecture all are major drivers of employment in the city. Not to mention real estate, which is fueled in part by the largest business district in the entire world.

But Covid may change the game. Large cities can be a hassle and expensive to live in. Many big city workers like the professional dynamism, amenities and pay of working in a large city but are put off by the high housing costs and long commutes.

Counting car and public transit options, NYC has the longest commute times in the nation, averaging about an hour. I have personally known people that have commuted from as far away from Hartford Connecticut and Princeton New Jersey into Midtown Manhattan which each is almost a 2 hour journey. The Lexington Avenue rail line, which runs down the east side of Manhattan, had more daily commuters pre-Covid than the entire transit systems of San Francisco, Chicago and Boston combined.

Housing is outrageously expensive. Despite the hoopla around the cost of San Francisco real estate, if you look at price per square foot, Manhattan real estate is twice as expensive as San Francisco real estate. The comparisons of San Francisco to New York City as a whole which makes the San Francisco seem more expensive is a bit of a misnomer because NYC encompasses 5 different counties with 10 times the people. There is a lot of variability in the housing within the city and the center of commerce is still Manhattan. Most workers in the outer boros have to commute into Manhattan for those high paying jobs, similar to how those in the Bay Area would have to commute to San Jose or San Francisco for work.

Enter Covid

Covid is showing that people can keep the networks which are so beneficial in big cities like NYC but maybe not spend all their time there.

This opens up the question, which is probably the hottest topic besides the virus itself in business right now: how much of the workforce should work remotely now that business knows they can retain talent and have them work anywhere? Businesses will come to their own conclusions based on how they operate. Facebook says it wants 50% location independent by 2030. UBS says it would like a third of workers permanently working from home.

In the case of Facebook there is a catch, you can live anywhere you like but they will adjust your pay based on where you live. If you pretty much live anywhere outside of the Bay Area, this is essentially a pay cut.

What workers have now to consider is where they would like to live given that pay may be lower but housing and quality of life may be cheaper in another location. So to help out, I have compiled a list of metro areas based on their cost of living index and that don’t have state taxes.

The reason I picked states with no taxes was that without these, the lower pay may be comepletly offset by the lower taxes, in some cases it may even be a net after tax gain. Some of these cities are not in the most desireable locations but others are major hubs in themselves. Covid could lead to a population and housing boom in some locations like this, but first let’s get into which cities made the list and how they are ranked.

The List

I used the Numbeo cost of living index by city. This list indexes cities in the US and Canada with NYC being the most expensive at a level of 100 and cheaper cities with levels below that, the lower the number the cheaper the cost of living in that city.

It helps to understand as well that in the US some states have their own income taxes in addition to federal taxes. In the case of NYC we even have city income taxes on top of state and federal taxes.

In contrast, there are some states with absolutely no income taxes at all, and no, they aren’t all terrible places to live in.

Source: The Tax Foundation

For these reasons, fleeing from a high place like NYC to a low tax one could help or completely offset taxes paid in another state even with lower pay. The key factor being how much lower that gross pay would be based on the lower cost of living.

To find this out I looked at the cities with the highest cost of living in states with no income tax. The results are below.

• Anchorage, AK – 91.21

• Seattle, WA – 88.36

• Miami, FL – 83.72

• Ft Lauderdale, FL – 81.56

• Tacoma, WA – 78.94

• Tampa, FL – 78.52

• Spokane, WA – 73.43

• Ft Worth, TX – 72.76

• Knoxville, TN – 72.15

• Orlando, FL – 72.12

• Nashville, TN – 71.98

Takeaways

Ok the first thing you probably noticed was Alaska, I doubt many people are moving to Anchorage from NYC or the Bay Area so we can likely strike that one off the list of attractive locations.

The other thing you may notice however is that cities in Florida take 4 of the 10 spots with Miami taking the top spot. Washington State also has a strong showing in that it’s 3 main cities, Seattle, Tacoma and Spokane all fall within the top 10.

Surprisingly Texas, even though it is the second most populous state, only has Ft. Worth in the top 10, housing may be cheap in Texas but your pay may take a significant hit for moving there.

So for those fleeing the Bay Area and wanting to maintain a high level of pay, the Seattle area (which the wider area includes Tacoma) May be a strong option. If you prefer the South or a more spread out setting Dallas – Ft. Worth it Tennessee May be an option.

For New Yorkers, the pull of Florida is already strong: a 2 hour flight from NYC, no state taxes and good weather. Combine that with reasonable housing and decent pay compared to what one can make in the city not to mention there are already a ton of New Yorkers already there and you have a good case for many who would like to work from home full time to relocate there.

In fact, during the pandemic, many Nee Yorkers who travelled far distances did just that and decamped to Florida based on a recent graphic made by The New York Times.

In fact it may not be that drastic of a shift. I had a co-worker at my former job who commutes from North Carolina. He kept a small studio in New York and owned a large home with his family in North Carolina. He raves about how his lifestyle had improved so much by living there. He spent his weekdays in NYC and his weekends in North Carolina. He was able to stay out late for client dinners in the city and he exclaimed “my wife is actually happy to see me!” on the weekends. The higher pay enabled him to keep a 4,000 square foot home in a gated community in North Carolina which included a tennis court and swim center.

Not everyone wants to spend only the weekends with their family, but the option of a full time work from home or a hybrid of working in the office part time, say one week a month or every other week, may be appealing for many in high density large cities. If this mode takes hold as many are predicting, look for Florida to be a big winner.

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