Why do prices matter when comparing places?

Hawaiʻi is one of the most desirable—and most expensive—places to live in the world. But for 23 of the past 25 years, more residents have moved to other states than new arrivals have come to the islands. Rhetoric about being “priced out” is usually tied to expensive places where otherwise thriving economies drive gentrification, rising prices, and inequality, pushing middle- and lower-income residents to leave. Hawaiʻi, however, has neither the high incomes nor the extreme inequality of those places. Instead, Hawaiʻi’s experience may more closely resemble economically distressed or “left-behind” regions—marked by stagnant productivity and limited opportunity, though typically with much lower costs of living. In Hawaiʻi’s case, a persistently high relative cost of living may even mask these structural weaknesses and the extent of its economic decline.

So, is Hawaiʻi’s economic distress really about its high cost of living? Or is Hawaiʻi more like left-behind regions with stagnant local economies? Motivated by this puzzle, we re-examine Hawaiʻi’s economic performance by adjusting GDP per capita, per capita personal income, per capita growth, and GDP per hour worked for its high cost of living, revealing a deeper perspective that casts the “price of paradise” in a new light.

The analysis places Hawaiʻi’s economy alongside economically distressed places rather than priced-out metros and shows that its economic distress reflects more than 30 years of lagging per capita growth and productivity, not a rising cost of living, which has remained high but relatively stable compared to other states.

Geographic price differences confound comparisons of economic performance across cities by conflating nominal urban advantages with real differences in well-being. Existing tools only partially address this problem: the Bureau of Economic Analysis publishes a Regional Price Parity (RPP) Index that represents relative price levels in US cities and states, but it is available only annually since 2008 and with a publication lag, limiting its usefulness for historical or high- frequency analysis. To address this measurement gap, we use the Consumer Price Index (CPI) for 29 US cities to construct a CPI-based RPP, enabling consistent comparisons of urban economic performance over time at constant and comparable prices. We exploit standard price-parity properties using publicly available CPI data to estimate CPI-based RPPs at a higher frequency and over longer historical horizons. This results in a CPI-based RPP for any period with published CPI data, as far back as 1913 in some cities to the most recent observations. By separating nominal urban advantages from cost-of-living differences, the index allows researchers to reassess claims about urban well-being, affordability, and the real returns to agglomeration. We demonstrate the index by examining long-run regional price dynamics and comparing real per capita GDP and real per capita personal income across cities at constant and comparable prices.