The purchasing power of the dollar in America’s largest city is known as the New York dollar.
The New York dollar concept is a measure of how much a US dollar is worth in New York City. It is generally much more expensive to live in New York than in other cities across the country. Everything from housing to property costs significantly more than average. To make up for this disparity, most jobs in New York also pay a significantly higher salary, meaning the city has its own separate economy where everything is valued differently. The New York dollar is a way of converting the real value of a New York dollar into something more people can identify with.
Because space is at a premium in New York and the city has such a large population, housing costs are higher there compared to the rest of the United States.
In the area of taxes, New York City is also significantly higher than most other areas of the country, and this is another reason why the New York dollar is valued differently. People in New York generally pay higher property taxes, sales taxes, and income taxes. In general, they pay about 15% of their income in taxes, while the average person in the rest of the country would pay about 9%.
Housing costs also cause the New York dollar to be valued very differently. The average New Yorker spends nearly 60% of their income on housing, while the average American would only pay about 40%. In part, that’s because it costs a lot more to build a home in New York, and builders have to pass that cost on to consumers. In part, it’s also because space is at a premium in New York – the city has such a large population that there is a greater demand for housing.
When economists discuss the idea of different values for currency, they often mention the idea of purchasing power parity (PPP). What this means is that the price of goods is adjusted in different locations based on the average salary. This is usually done to ensure that the overall value of items is approximately equal for citizens in different locations. On an international basis, there is usually a great deal of effort to ensure that the PPP is maintained because it allows for fairer international trade. In the case of the New York dollar, purchasing power parity is maintained by keeping the price of goods high enough to accommodate higher wages.
The New York dollar is sometimes used as a way of illustrating the PPP concept in simple terms. Another similar concept is the Big Mac® index. This was published by The Economist as an easy way to explain exchange rate theory without getting too technical. Basically, it traces the idea of international PPP by analyzing the parity between the Big Mac® price in different countries. Some economists have coined the term “burgernomics” as a way of describing the use of the Big Mac® index.