Last updated on 2015-07-07
I made a fair effort to use the state’s new Real Wage Calculator to demonstrate how much purchasing power teachers sacrifice to stay in South Dakota. Now Jodi Schwan points out that I probably need to throw those numbers out completely.
Schwan’s Sunday feature is a gentle conversation with Governor’s Office of Economic Development honcho Pat Costello, who shows Schwan how peachy keen his new math toy is:
“This is such a huge improvement,” said Pat Costello, commissioner of the Governor’s Office of Economic Development, as he and [GOED tax and industry specialist Mike] Boehm demonstrated it for me last week.
They had a lot of help putting it together, from Eide Bailly LLP, which helped compile state-by-state tax rates, to students at Dakota State University, who built the website [Jodi Schwan, “Meet the Real Wage Calculator,” that Sioux Falls paper, 2015.03.29].
Eide Bailly—oh yeah, they were the accountants the state hired to find nothing really bad had happened with GOED during the EB-5 days.
When the state wants the numbers to add up in its favor, it calls Eide Bailly.
I read the FAQ and Learn More on the Real Wage Calculator website. I am still confused by the math. It states the the “real wage/purchasing power is calculated by dividing after tax wages by the regional price parity as produced by the United States Bureau of Economic Analysis. ” It also says that they used the 2012 RPP, “regional price parities are for 2012, the 2013 regional price parities will become available in late spring of 2015.” The following site gives the 2012 RPPs for each state, http://www.bea.gov/newsreleases/regional/rpp/rpp_newsrelease.htm
I put in gross wages of $30,000 in SD (non-metropolitan portion), it gave me after tax wages of $25,148, and ‘purchasing power’ of $30,153. If I follow the formula that they have posted on their website, to calculate ‘purchasing power’, I divide after tax wages by regional price parity. So I used my cell phone calculator and took $25,148 divided by .882 (rpp as a decimal). My calculator gave me a ‘purchasing power’ of $28,512. This is $1,640 less than the calculator’s ‘purchasing power’ and seems more realistic to me. How can I spend $30,153 if my gross wages are less than that?
I did the same for gross wages of $40,000, and my calculations indicate a ‘purchasing power’ of $37,282, but the ‘real wage calculator’ says my ‘purchasing power’ is $39,427, $2,145 more. It appears that as wages increase the ‘real wage calculator’s purchasing power calculator’ is off by larger amounts. So, are the after tax wages calculated incorrectly or is this ‘fuzzy math’?
One needs also to be certain to enter accurate actual (not convenient hypothetical) wage differences between the different locations for a given job. For example – a heavy equipment operator in Southern California can expect to have a starting wage of around $60/hour vs. a $20/hr. wage in SD.
And then of course there are those jobs exist (by title, or skill) in other places and don’t exist at all in SD.
Sounds fuzzy to me, Dr. Math. The FAQ appear to omit some factor of the formula.
The odd feature of “real wage” coming out higher than actual pre-tax wage persists only up to about $33,000. May we assume that “after-tax wages” includes calculation of federal income tax?
It would be fun to hook a ‘bot up to the GOED website and query hundreds of different salary points so we could graph income vs. purchasing power and get a visual on the nature of this formula.
I just checked Minnesota (non-metro) and Iowa (non-metro) for $40,000 gross wages. Those calculations of purchasing power also do not match the formula that is given. Maybe there is something in the formula that they did not post, but that is still morally wrong.
French math is not real math.
How’s that GOED “jobs engine” stack up regionally? Not so good.
http://247wallst.com/economy/2015/03/28/unemployment-drops-below-4-in-8-states/
The answer? Same as it ever was: pay them and they will come.
I’ve sat across the table from Eide for a dozen years. You get what you pay for. Pun intended.
Note that the Bureau of Economic legend for the tables states, ” South Dakota was the only state with a decline in real personal income” for 2012. The Regional Price Parity for South Dakota is 88.2, or 11.8 percent more than the national average, which is what comprises the 100 percent figure. (D.C. RPP is 118, or 18 percent less in buying power.) Using this formula, the calculator can make it seem like a $30,000 actual wage can produce $30,153 in buying power in South Dakota. The comparative scale is a statistical inference that does not reflect the actual conditions which make South Dakota the only state that shows a decline in real personal income for 2012. The figures are used in a classic case of sleight-of-mind misdirection.
I should drop by Kessler’s and argue that they should divide my dollars by the RPP to reflect their “real” value, just like currency conversion.
I just checked their math for SD and it looks like they are dividing by 0.834 instead of the rpp of 0.882. I tweeted the GOED and asked them about it. Will let you know if they respond.
In French Math they just make things up. They don’t divide by rpps.
Dr. Math, all the RPPs (RPP1) can be found here: “BEA site”.
2012 RPP for all of SD is 0.882.
2012 RPP for Sioux Falls Metropolitan Statistical Area is 0.932.
2012 RPP for Rapid City MSA is 0.924.
2012 RPP for Non-Metro (non MSA) SD is 0.834.
These last three from this list above are the numbers used in the “Real Wage Calculator.” For example, the “After Tax Wages” is divided by 0.834 when you choose “South Dakota (nonmetropolitan portion)” in the “location” drop down menu.
Eide Bailly is also the accountant for the fair grounds when they were short about six hundred thousand dollars. Then to make it look like they had done their job right they did a different check and found it. They checked the cash. Well who does not check the cash the first time.
Thanks gad2357 for the information. Now it makes sense to me. I shouldn’t have been using the 0.882 because that is the SD average rpp, not the specific one for each area.