Purchasing Power
The real value of your salary after adjusting for local cost of living, what your income can actually buy in terms of housing, food, and services.
Purchasing Power is a term from U.S. wage and occupational data — typically a concept from the BLS Occupational Employment and Wage Statistics survey, the DOL prevailing-wage system, or related employment statistics. The definition here is the practical worker-facing meaning. Understanding Purchasing Power is part of reading wage data defensibly. BLS and DOL conventions can be subtle — survey methodology, reporting thresholds, geographic definitions, and percentile calculations all shape what the headline numbers actually mean.
Each role-and-city page on SalaryTruth surfaces the Purchasing Power-relevant values for that specific combination, so the general definition here translates into concrete numbers on the per-role-and-city pages.
How It Works
Purchasing power is the true measure of what a salary is worth. It's calculated by dividing the nominal salary by the local cost of living index and multiplying by 100. For example: $120,000 in San Francisco (COL 180) has purchasing power equivalent to $66,667 in an average-cost city (120,000 ÷ 180 × 100). The same $120,000 in Houston (COL 93) has purchasing power equivalent to $129,032, nearly double. This concept is critical when evaluating remote work opportunities and relocation decisions. Remote workers earning a Silicon Valley salary while living in a low-cost city can have extraordinary purchasing power. However, some companies are adjusting remote salaries to reflect local cost of living, reducing this arbitrage. Federal government employees receive locality pay adjustments that attempt to equalize purchasing power across different duty stations, GS employees in San Francisco receive about 42% more base pay than those in the lowest-cost areas. Understanding purchasing power transforms salary comparison from a nominal exercise into a practical one: the question isn't "how much do I earn?" but "how much can I buy?"
Related Terms
- Cost of Living Index (COL Index), A measure of how expensive it is to live in a given city compared to the national average (100), accounting for housing, food, transportation, healthcare, and other essentials.
- Geographic Pay Differential, The difference in salary for the same job in different cities, reflecting local cost of living, labor supply and demand, state taxes, and industry concentration.
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About This Definition
This definition is part of the SalaryTruth Salary & Career Glossary, 25 terms explaining compensation, salary data, and career development. All salary data from the Bureau of Labor Statistics OEWS survey.