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What Does a Low Cost of Living Mean?
Let’s look at two quotations today in light of the angry student and alumni reaction to the College’s cost increase to $60,201 for the 2013-2014 academic year.
The cost of living is lower in the Upper Valley than in the areas where our peer institutions are located.
— The D, Verbum Ultimum: Unacceptable Unaffordablitity, March 4, 2013
“I think just to say that because Columbia is in the middle of Manhattan and Dartmouth is in Hanover, that therefore a Dartmouth education should be dramatically less expensive, is just not reflective of the reality of the situation.”
— College spokeman Justin Anderson as quoted in The D, College costs to rise 3.8 percent, March 4, 2013
Interestingly, for once both The D and Justin Anderson are correct, but they are correct about different things.
As for The D editorial board’s remark: obviously the cost of living is much higher in NYC than in Hanover. Just as a matter of taxation, NYC has a sales tax of 8.875%; whereas there is no sales tax in New Hampshire. State income tax for a single person earning $40,000/year in NYC is 5.66%, and city income tax is 3.37% — a total of 9.03%; in contrast, in New Hamsphire there is no state or local income tax.
Real estate prices in NYC are far above those in the Upper Valley. Rentals and purchase prices for apartments are multiples of what they are in New Hampshire. Of course, this difference has a direct impact on people living in NYC in the form of increased housing costs; it also impacts businesses, who must cover high real estate costs by increasing the prices of everything that they sell. To these elements we can add the high cost of security in NYC versus low crime New Hampshire, and much higher costs in important areas like construction.
What this should all mean is that in order to attract employees to work for it, Columbia should have to pay far more in wages to each of its workers than Dartmouth, so that the two school’s employees enjoy a roughly equivalent standard of living in the two places.
However, and here Justin Anderson is accurate, the difference in cost that one would expect between Columbia and Dartmouth “is just not reflective of the reality of the situation.” Why not? Because the reality of the situation is that Dartmouth, through ideologically motivated largesse and plain bad management, decided about 15 years ago to grossly overpay its employees compared to the local labor market — by a margin that today is about two times.
In fact, a 35-year-old dishwasher at Thayer, with no training and not even a high school education, earns more money than half of all American families. And if two 35-year-old Dartmouth dishwashers are married, their total family income is greater than 72.5% of all American families. (Note: The Congressional Budget Office’s calculation of the latter statistics does not take into account local cost of living. These comparisons include people living in high-cost and low-cost areas.)
The end result of this systematic overpayment is that the College is strapped for cash (ask any faculty member who has tried to fund a new idea any time since the dot.com bubble popped), even though the College has one of the highest tuitions of any educational institution in the country — higher than any school in the Ivies except Columbia — and one of the highest endowments. That’s not right.
Addendum: The same analysis can be applied to all of our Ivy sister schools: for example, the sales tax in Providence, Rhode Island is 7%, and the state income tax there is a flat 7%. The cost of real estate is higher, as well. Yet, even though Brown has almost 50% more undergrads than Dartmouth, and though its endowment is about 27% smaller than ours, last year tuition/room/board/fees at Brown were 5% less than at the College.
Addendum: Further to the cost of living in Columbia’s neck of the wood, the NYT ran a story not long ago entitled What is Middle Class in Manhattan? Some excerpts:
The price tag for life’s basic necessities — everything from milk to haircuts to Lipitor to electricity, and especially housing — is more than twice the national average…
This means someone making $70,000 a year in other parts of the country would need to make $166,000 in Manhattan to enjoy the same purchasing power.
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