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May 2011
One popular method of analyzing compensation by geography in the U.S. is using
Metropolitan Statistical Areas (MSAs) based on the geographic classification system used
by the Department of Labor (DOL) and Bureau of Labor Statistics (BLS). While
MSAs are commonly used for determining geographic pay differentials, they were not specifically
designed for compensation analysis and are not appropriate to use for all U.S. metro areas.
This article highlights three large metro areas in the U.S. where pay rates are not uniform
within the corresponding MSA and solutions for benchmarking geographic pay differences
in these markets.
Our annual in-depth analysis of technology and life science industry wages in the U.S. reveals that pay levels
for most Metropolitan Statistical Areas (MSAs) are similar for the core city and
combined adjacent counties. However, significant disparities in pay can occur in large metropolitan
areas that contain distinct social, economic, and cultural areas.
There are three major metro areas in the U.S. where there are significant differences
in pay within the corresponding MSA:
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San Francisco: CA: San Francisco-Oakland MSA [M]
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Seattle: WA: Seattle-Tacoma MSA [M]
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Chicago: IL: Chicago-Naperville MSA [M]
We assigned an [M] Geographic Pay Zone to each of these MSAs to indicate a “mix” of pay rates.
Geographic Pay Zones combine national data from Geographic Locales and zip codes
with similar pay rates. They provide large geographic data cuts and are useful for organizations
that want to create geographic pay differentials. Pay Zones span the highest paying areas
[i.e., Pay Zone 1] through the lowest paying areas [i.e., Pay Zone 5].
An alternative and more precise method to using MSAs for benchmarking pay in these markets would
be using specific Metropolitan Divisions (DIVs) within each MSA. A Metropolitan Division is
a locale within a large MSA. Divisions provide the most precise geographic pay rates within large metro areas.
Click here to
learn more about terminology used in this article and U.S. geographic data cuts
in Culpepper Compensation Surveys.
Our annual analysis of technology and life science industry wages shows that parts of the
San Francisco Bay Area have the highest market wage levels in the United States.
Pay rates in Oakland are considerably lower than San Francisco. If you combine data from Oakland
with data from San Francisco, as the San Francisco-Oakland MSA does, you will erroneously inflate
market data for Oakland and decrease market data for San Francisco.
Use either the CA: Oakland DIV [2] or the CA: San Francisco DIV [1] data cut to view
the most appropriate market data (Figure 1).
Other MSAs in the broad San Francisco-Oakland-San Jose CSA (Combined Statistical Area)
include:
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CA: San Jose MSA [Pay Zone 1]
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CA: Santa Cruz MSA [Pay Zone 1]
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CA: Napa MSA [Pay Zone 1]
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CA: Santa Rosa MSA [Pay Zone 2]
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CA: Vallejo MSA [Pay Zone 2]
Silicon Valley, which includes Santa Clara County, Santa Cruz County, San Mateo County,
and Southern Alameda County, is in Pay Zone 1.
Analysis of data from participants in the Seattle-Tacoma area reveals that pay levels in Tacoma
are significantly less than pay levels in Seattle. If you combine data from Tacoma with data
from Seattle, as the Seattle-Tacoma MSA does, you will erroneously inflate market data for Tacoma
and decrease market data for Seattle.
Use either WA: Seattle DIV [2] or the WA: Tacoma DIV [3] (Figure 2).
In addition to WA: Seattle DIV [2], Culpepper Compensation Surveys also
include a custom data cut for WA: Seattle (King County Only) [2] for more precise
benchmarking in Seattle.
Pay rates in Lake County, IL and Kenosha County, WI are higher than other areas in
the Chicago-Naperville MSA.
Use either the IL: Lake County DIV [2], the IN: Gary DIV [3-4]* or
the IL: Chicago DIV [3] data cut to view the most appropriate market data.
* It is worth noting that IN: Gary DIV [3] and IL: Chicago DIV [3] have
similar wages for technical and scientific jobs. However, wage levels for non-technical,
operations jobs are significantly lower in Gary DIV [4] compared to Chicago DIV [3].
In closing, compensation for specific jobs in local markets can vary and be impacted by a variety of
factors, including company size, industry sector, talent availability, cost of living, and health of
local economies.
Compensation professionals should carefully consider differences within markets they are benchmarking
and make sure they are not mixing locations with different pay rates. Pay levels for
most Metropolitan Statistical Areas (MSAs) in the U.S. are similar for the core city and
combined adjacent counties. However, significant disparities in pay can occur in large metropolitan
areas that contain distinct social, economic, and cultural areas.
Data Source: Culpepper Operations, Technology, and Life Science Compensation Survey database.
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