Most Helpful Girl
The two biggest things driving this are (1) the price of housing, and (2) the price of labor.
If you look at breakdows of "cost of living" in different countries, you'll notice that the only thing that varies GREATLY tends to be the cost of housing.
There's a *small* component here that's an actual, real cost (more expensive building materials, etc) -- but, for the most part, housing prices are PURE supply and demand. The more people want to be somewhere... the higher the prices will go, until an equilibrium is reached.
This is EASILY the single biggest component of "cost of living".
In first-world countries, there are laws that regulate the price of labor, set minimum wage floors and industry wage/tax guidelines, etc.
More expensive cities/states within those countries have their own labor and wage laws, too. Biggest reason? ... Housing (see #1).
When labor is more expensive, that makes EVERYTHING more expensive.
When people in canning and packaging factories have to be paid more, the price of canned and packaged food goes up.
When service providers have to be paid more, the price of services goes up... and, when manufacturing companies use those services, the price of those companies' goods goes up, too.
When gas and oil workers have to be paid more, the cost of fuel goes up -- and that drives up the prices of EVERYTHING that's ever driven anywhere on a truck, which is basically... well, anything at all.
Etc. etc. etc.
Most of the differences in the non-housing part of "cost of living" ultimately come from differences in wages.2