Judge Richard Posner debunks the case for a general raise in federal judge’s salaries, by noting that there isn’t any shortage of quality applicants, and resignations by judges returning to the private sector continue to be rare. But at the end of his piece, Posner tags on the following:

But there is one compensation measure that is long overdue and could be effectuated at minimum cost to the federal fisc. That would be to introduce a cost of living differential. The cost of living differs very widely among different communities in the United States. Boston’s cost of living is 40 percent above the average for the nation; the cost of living in Kanakee, Illinois, is 12 percent below the average; and these are not the extremes. Modest cost of living differentials, constituting raises limited to high cost-of-living areas, for federal judges would go some distance toward remedying any perceived problem of judicial undercompensation.

It is far from obvious that this proposal would survive the same scrutiny that Posner applies to the proposal for an across-the-board raise. Is there any shortage of quality applicants to judgeships in cities where the cost of living is high? Are resignations more frequent?

Armen Alchian in class used to debunk the equivalent proposition that the University of California needs to pay higher salaries on campuses located where the cost of living is higher. Why not? The cost-of-living difference between (say) Los Angeles and Fresno isn’t in the price of groceries, or anything else that can be shipped between the two cities, to any significant degree. Arbitrage rules that out. The difference is all in the price of housing or real estate. And why is real estate in LA more expensive than in Fresno? Because more people would rather live in LA (price aside). In equilibrium, the price of housing in LA is just enough higher to equalize the attractiveness of the two communities to the marginal resident. It follows that the UC system needn’t pay higher salaries to attract employees to places where people would rather live (at an equal cost), i.e. are just as happy to live when facing the higher cost of living. Ditto the federal judicial system.

HT: Ilya Somin at the Volokh Conspiracy, who unfortunately endorses Posner’s proposal for a cost-of-living pay differential.