# What is a living wage and how is it estimated?

Today, families and individuals working in low-wage jobs make too little income to meet minimum standards of living in their community. But just how much do families need to meet these standards? Policymakers often turn to measures like the federal poverty line – a national number based on three times the cost of a minimum food diet in 1963 – to answer that question. However these benchmarks no longer reflect the true cost of living in a modern economy. The Living Wage Calculator was originally developed in 2003 to more comprehensively estimate the employment earnings – or the living wage – that a full-time worker requires to cover or support the costs of their family’s basic needs where they live. Now, the calculator features geographically-specific costs for food, childcare, health care, housing, transportation, other basic needs – like clothing, personal care items, and broadband, among others – and taxes at the county, metro, and state levels for 12 different family types.

Read on for an overview of how the living wage is calculated or dive into the technical documentation produced by the Living Wage Institute for a more detailed description of the estimation methodology.

#### Overview

At its simplest, a living wage is what one full-time worker must earn on an hourly basis to help cover the cost of their family’s minimum basic needs where they live while still being self-sufficient. Here’s a quick guide for what you need to know about the living wage data you see on the calculator.

###### GEOGRAPHY

The calculator includes living wage estimates for 3,143 counties to account for the geographic variation in costs across the U.S. The data is also available for 384 Metropolitan Statistical Areas (MSAs or metros) and 50 states plus Washington, D.C.

###### FAMILY TYPE

For each geography, there is a living wage estimate for 12 family types, with varying numbers of adults and children as detailed in the graphic below. It’s important to note that in households with multiple full-time working adults, the living wage is what one of them would need to earn hourly at a full-time job, assuming the other is also earning the same.

###### BASIC NEEDS

There are eight basic needs – food, childcare, health care, housing, transportation, civic engagement, broadband, and other necessities – that make up the cost components of the living wage, with an additional cost associated with income and payroll taxes. Use the table below to explore the data sources for each of these components included in the living wage estimates for 2024. Because each source includes data from different years, all data used in calculating a living wage is adjusted for inflation to December 2023 dollars using expenditure-specific indexes from Consumer Price Index-All Urban Consumers (CPI-U).

Component Data Date Source
Childcare 2023; 2020 U.S. Department of Labor, Women’s Bureau, National Database of Childcare Prices (2016-2018); Child Care Aware, Demanding Change: Repairing Our Childcare System (Appendices)
Food June 2023 USDA Food Plans: Cost of Food Reports
Health Care 2022 Health Insurance Premiums: Medical Expenditure Panel Survey Health Insurance Component Analytical Tool (MEPSnet/IC)
2022 Out-of-Pocket Medical Expenses: U.S. Bureau of Labor Statistics Consumer Expenditure Survey, Table 1400 (Drugs; Medical services; and Medical supplies)
Housing October 2023 U.S. Department of Housing and Urban Development Fair Market Rents (40th Percentile Rents)
Internet & Mobile 2020 BroadbandNow United States County Broadband Statistics for 2020
2022 U.S. Bureau of Labor Statistics Consumer Expenditure Survey, Table 1400 (Cellular phone service)
Transportation 2022; 2019 U.S. Bureau of Labor Statistics Consumer Expenditure Survey, Table 1400 (Cars and trucks (used); Gasoline and motor oil; Other vehicle expenses; and Public transportation); Center for Neighborhood Technology, H&T Index
Civic Engagement 2022 U.S. Bureau of Labor Statistics Consumer Expenditure Survey, Table 1400 (Entertainment: fees and admissions; Audio and visual equipment and services; Pets; Toys, hobbies, and playground equipment; Entertainment: other supplies, equip., & services; Reading; and Education)
Other Necessities 2022 U.S. Bureau of Labor Statistics Consumer Expenditure Survey, Table 1400(Apparel and services; Housekeeping supplies; Personal care products and services; Household furnishings and equipment; and Miscellaneous household equipment)
Income and Payroll Taxes 2023 National Bureau of Economic Research, TAXSIM (v35)
###### FAMILY BUDGET AND LIVING WAGE CALCULATION

The underlying data on the cost of basic needs is used to calculate the actual hourly living wage for each county and each family type through a four step process, summarized in the figure below.

#### What are basic needs?

The Living Wage Calculator’s estimates are based on the costs of eight components, each of which represents a basic need: childcare, civic engagement, food, health care. housing, internet & mobile, transportation, and other necessities. It also includes relevant income and payroll taxes, but how they are determined will be covered in the following section. In general, it is assumed that families select the lowest cost option that enables them to meet each of these basic needs at a minimum but adequate level. As such, the living wage does not budget for eating out at a restaurant or meals that aren’t prepared at home; leisure time, holidays, or unpaid vacations; or savings, retirement, and other long-term financial investments.

Below, explore the definitions and underlying data sources for each of the cost components of a living wage.

Data on the cost of childcare primarily comes from county-level information collected from the Department of Labor’s National Database of Childcare Prices (2016-2018). Gaps in county-level costs were filled using Child Care Aware data. Since the cost of care can vary depending on the age of the child, we select a combination of data on center-based care for toddlers, preschoolers, and school-age children for each family type.
Data on the cost of food is based on the U.S. Department of Agriculture’s Low-Cost Food Plan, which represents a nutritious and practical diet all prepared at home and is considered to be the second least expensive out of the four nutritionally adequate national standards for food plans described by the USDA. The USDA publishes monthly costs associated with the Low-Cost Food Plan, and this national cost broken down by family size and individual family members’ gender and age serves as a base for the estimates.
The cost of health care is composed of two subcategories: (1) premiums associated with employer-sponsored health insurance plans and (2) out-of-pocket expenses for medical services, drugs, and medical supplies. Data on the cost of health insurance premiums is based on the Medical Expenditure Panel Survey Health Insurance Component (MEPS-IC) , which uses an annual survey of employers to develop state-level estimates for annual premiums and amount contributed per employee at private sector establishments for single individuals, an individual and one dependent, and families. Regionally-adjusted data on the cost of medical services, drugs, and medical supplies comes from the U.S. Bureau of Labor Statistics’ annually-collected Consumer Expenditure Survey.
Data on the cost of housing comes from the U.S. Department of Housing and Urban Development’s Fair Market Rents (FMR) dataset, developed from responses from recent movers in the American Community Survey. For metropolitan areas and nonmetropolitan counties, the FMR dataset provides estimates of the 40th percentile gross rents – which include the cost of shelter, contract rent, and utilities sans telephone, cable, and broadband – for standard quality units ranging from zero to four bedrooms.
Data on the cost of telecommunications services is composed of two subcategories: (1) home internet plans and (2) cellular telephone (mobile) service subscriptions, both critical utilities that are not currently captured within the U.S. Department of Housing and Urban Development’s Fair Market Rents dataset. County-level data on the cost of internet comes from research on lowest-cost monthly plans from BroadbandNow, an independent resource for comparing local internet providers. Regionally-adjusted data on the cost of cellular telephone services comes from the U.S. Bureau of Labor Statistics’ annually-collected Consumer Expenditure Survey.
The cost of transportation is modeled using a combination of data from the U.S. Bureau of Labor Statistics’ annually-collected Consumer Expenditure Survey and the Center for Neighborhood Technology’s H&T Index. The Consumer Expenditure Survey data includes regionally-adjusted expense estimates for used cars and trucks, gasoline, motor oil, other vehicle expenses (like financing, insurance, and maintenance), and public transit, which all vary based on household size.
While not a typical component of living wage historically, civic engagement – or the ability to participate in your local community – has become an increasingly sizable individual and family expense in daily life in the U.S. Data on the cost of civic engagement is constructed from the U.S. Bureau of Labor Statistics’ annually-collected Consumer Expenditure Survey, and it includes the regionally-adjusted cost of education, reading, fees and admissions, pets, toys, hobbies, playground equipment, and other items necessary for participating and engaging in civic activities.
Some basic needs – like clothing, personal care products, and housekeeping supplies – are not otherwise covered in the other major budget components. To account for these other necessities, regionally-adjusted data on their costs are sourced from the U.S. Bureau of Labor Statistics’ annually-collected Consumer Expenditure Survey.

#### How is a living wage calculated?

The cost estimate for each basic need are used to calculate the hourly living wage in four steps for each of the 3,143 counties. Then, an additional step aggregates county-level living wages into metro- and state-level estimates.

As a first step, the cost of each basic need is added together for each county, arriving at an annual family budget, less taxes. Each basic need, however, may not be applicable to every family type. For example, a family with no children will have zero child care costs as might a family with just one of the two adults working.
The annual family budget calculated in Step 1 reflects earnings after taxes have been paid. In other words, it does not include the money a family needs to withhold from their earnings to cover their taxes.

While property and sales taxes are already included in the estimated cost of each basic need, the additional cost of income and payroll taxes are appraised using the National Bureau of Economic Research’s TAXSIM, a microsimulation model of the U.S. federal and state income tax system. For the inputs into the model, the annual family budget after taxes is used as a proxy for income; the family composition determines the filing status and number of dependents; and the county helps identify the state of residence. Based on these inputs, the TAXSIM model output multiplies the annual family budget after taxes by the marginal tax rate to roughly estimate an output for the amount owed in federal and state income and payroll taxes, assuming that an employer covers half – or 7.65% – of the Federal Insurance Contributions Act (FICA) payroll tax liability. The federal and state income and payroll taxes are added to the annual family budget less taxes, yielding the total annual family budget needed to meet all basic needs, including tax.
The total annual family budget is then divided by the total number of workers in a family. For instance, if a family of four had two working adults, the pre-tax annual family budget would be divided by two but if a family of four had only one working adult, the pre-tax annual family budget would only be divided by one.
To transform value generated in Step 3 into an hourly wage rate, we divide the worker’s earnings by 2,080 hours, which assumes that the one working adult is employed full-time at 40 hours a week for 52 weeks a year. This hourly wage – or the living wage – is the minimum a full-time worker must earn to support the costs of their family’s basic needs and taxes in the county in which they live.
###### METRO- AND STATE-LEVEL LIVING WAGES

While similar goods and services are available across the U.S., factors like state and local tax rates, market demand, competition, shipping, logistical costs, and seasons, among others can greatly impact the local prices of basic needs. To account for this localized variation in costs, the Living Wage Calculator data is computed and primarily meant to be used at the county-level. For ease of reporting, however, we also provide living wage estimates for 384 Metropolitan Statistical Areas – more commonly called MSAs or metros – and each of the 50 states plus Washington, D.C. To aggregate county-level data to these larger geographic areas, where applicable, we use county population estimates from the U.S. Census Bureau to take a weighted average of the living wage – or its underlying components – across counties.

#### What’s different between this year and last year?

While the methodology to calculate a living wage remains relatively consistent year-over-year, changes in the underlying data sources can increase or decrease the estimates for the cost of basic needs or the living wage overall each year.

This year, in addition to leveraging expenditure-specific price indexes for inflation adjustments, many of the changes were focused on introducing more geographic variation to the data to more accurately estimate differences between labor market areas. In some cases — like with the childcare, transportation, and internet and mobile cost components — this meant using a new underlying source for the model. In other cases — like with the food, health care, and housing cost components — this meant carefully applying indices to introduce new variation to otherwise aggregated estimates.

On net, the cost of living has increased due to inflation, and changes to both data sources and indices have generally resulted in higher living wage estimates for all 12 family types across the vast majority of counties. At the cost component level, there may be increases or decreases in values due to all these factors.