The Importance of Cost of Living Ranking to Relocation Policies

Living cost information is essential to a successful move. That’s true of anyone moving from one area to another, be it for personal or business reasons. Every city has a unique economy and this affects how cities compare in terms of the cost of living. So what determinants go into the cost-of-living? And how should that impact your company’s relocation policy?  

What goes into a cost of living calculation? 

Cost of living is self-explanatory. It’s the cost to live in a location.  There are certain things—food, housing, transportation—considered essential to living. All of these costs in a specific area are priced and analyzed. The final calculation, typically expressed as an index to a base locationat index determines what the cost of living difference is between two locations. This difference varies based on an individuals’ profile:  homeowner/renter, salary, family size, etc.  

While housing can be notoriously expensive in locations such as New York City, San Francisco and Washington D.C. to name a few, focusing only on housing can lead to a long-held misunderstanding. While it is true that housing is a major cost factor, it is not the only factor. Components such as car payments, groceries, car insurance, recreation and utilities also play a role. These may be easily overlooked when perusing real estate listings, but they can have a serious impact on your company’s relocation policy.

What does this mean for relocating employees?  

When relocating an employee to a more expensive area, many companies offer a cost of living allowance (COLA). This is to help them adjust to the increased prices, compared to their original home. This can be extremely helpful to making the move a successful one. Unfortunately, it can also be a drain on company expenses. Companies sometimes provide employees with COLAs that only measure the cost difference in housing and apply that difference to all of the other components that employees spend money on, such as groceries and transportation. However, the difference in the costs of groceries and transportation usually pales in comparison to the difference in housing.  Geographic differences in housing costs vary much more across locations than differences for other cost components, which do not change as greatly from one location to another. 

Consider a family moving from Cleveland to New York. The price of housing in a community in NYC similar to the one they’re moving from in Cleveland is three times the price of their old home. And that’s a lot. But, when that same family shops for groceries in New York, they don’t spend $1,000 on two week’s worth of groceries that may have cost $300 in Cleveland.

For this reason, it’s important for companies to consider the quality of their data sources before providing a COLA to relocating employees. 

Where can companies find good living cost data? 

Google searching “cost of living calculator” isn’t going to get you what you’re looking for. Those resources rarely have information about how often they are updated or what components or expenditure patterns they use when comparing the cost of living in several locations. They also generally lack the ability to take into account appropriate living communities based on salary. 

Companies looking for up-to-date information specific to any location required can trust the Motus platform. This precise information can save your company hundreds if not thousands of dollars each time an employee moves. Curious to learn more about our cost of living allowance product? 

Learn More Here