Introduction to the living wage model

The living wage model is an alternative measure of basic needs. It is a market-based approach that draws upon geographically specific expenditure data related to a family’s likely minimum food, child care, health insurance, housing, transportation, and other basic necessities (e.g. clothing, personal care items, etc.) costs. Detailed description of the data used in the tool can be found on the landing page of each state.

Family Compositions

The living wage calculator estimates the living wage needed to support families of twelve different compositions: one adult families with 0, 1, 2, or 3 dependent children, two adult families where both adults are in the work force with 0, 1, 2, or 3 dependent children, and two adult families where one adult is not in the work force with 0, 1, 2, or dependent children.

The calculator includes estimates for single adult households, two adult households with one adult working, and two adult households with two adults working. In two adult households with children and one adult working, the second adult is assumed to be providing child care. Working adults are assumed to be working full-time; work is assumed to be year-round, 40 hours per week for 52 weeks, per adult.

Families with one child are assumed to have a ‘young child’ (4 years old). Families with two children are assumed to have a ‘young child’ and a ‘child’ (9 years old). Families with three children are assumed to have a ‘young child’, a ‘child’, and a ‘teenager’ (15 years old).

Geographic Definitions

The living wage is calculated at the county, metropolitan area, state, regional, and national level. Unless otherwise noted, geographic definitions are consistent with those published by the Office of Management and Budget in 2009.i

The living wage is calculated for 366 metropolitan areas and all 50 states and the District of Columbia. It is not calculated for those who reside in Puerto Rico, Guam, or the Virgin Islands. Regional assignments are made by state according to Census definitions.

Reported national values are calculated as the average (mean) state living wage.

Data Sources and Calculations

The living wage is defined as the wage needed to cover basic family expenses (basic needs budget) plus all relevant taxes. The living wage calculation does not include publicly provided income or housing assistance. Values are reported in 2014 dollars. To convert values from annual to hourly, a work-year of 2,080 hours (52, 40 hour work weeks) is assumed. The basic needs budget is calculated as follows:

Basic needs budget = Food cost + child care cost + (insurance premiums + health care costs) + housing cost + transportation cost + other necessities cost

The tax values are applied to the basic needs budget to calculate a living wage as follows:

Living wage = Basic needs budget + (basic needs budget * (taxes))

Data Sources For Each Component Of The Basic Needs Budget

Food.ii The food component of the basic needs budget was compiled using the USDA’s low-cost food plan.iii The low-cost plan assumes that families select lower cost foods and that all meals (including snacks) are prepared in the home.

Child Care.iv The child care component is constructed from a 2013 report published by the National Association of Child Care Resource and Referral Agencies (NACCRRA). This report provides state-level child care cost estimates for 2012.v We assume that low-income families will select the lowest cost child care option available; therefore we used the lowest cost option (family child care or child care center). Values were inflated to 2014 dollars using the Consumer Price Index inflation multiplier from the Bureau of Labor Statistics.vi

Health. Typical health-related expenses are difficult to estimate due to the multitude of variables that potentially impact health care expenditures, such as the relative health of household members and the range of coverage and affiliated costs under alternative medical plans. The health component of the basic needs budget includes: (1) health insurance costs for employer sponsored plans, (3) medical services, (3) drugs, and (4) medical supplies.vii Values were inflated to 2014 dollars using the Consumer Price Index inflation multiplier from the Bureau of Labor Statistics.viii

Housing.ix The housing component captures the likely cost of rental housing in a given area in 2014 using HUD Fair Market Rents (FMR) estimates. The FMR estimates are produced at the sub-county and county levels.x County FMRs were obtained by aggregating sub-county estimates (where sub-county estimates existed) using a population-weighted average. State and metropolitan area FMRs were also obtained by aggregating county FMRs using a population weighted average.

Transportation.xi The transportation component is constructed using 2012 data by household size from the 2013 Bureau of Labor Statistics Consumer Expenditure Survey including: (1) Cars and trucks (used), (2) gasoline and motor oil, (3) other vehicle expenses, and (4) public transportation. Values were inflated to 2014 dollars using the Consumer Price Index inflation multiplier from the Bureau of Labor Statistics.xii

Other Necessities.xiii The basic needs budget includes cost estimates for items not otherwise included in the major budget components such as clothing, personal care items, and housekeeping supplies. Expenditures for other necessities are based on 2012 data by household size from the 2013 Bureau of Labor Statistics Consumer Expenditure Survey including: (1) Apparel and services, (2) Housekeeping supplies, (3) Personal care products and services, (4) Reading, and (5) Miscellaneous. These costs were further adjusted for regional differences using annual expenditure shares reported by region.xiv Values were inflated to 2014 dollars using the Consumer Price Index inflation multiplier from the Bureau of Labor Statistics.xv

Taxes.xvi Estimates for payroll taxes, state income tax, and federal income tax are included in the calculation of a living wage. Property taxes and sales taxes are already represented in the budget estimates through the cost of rent and other necessities. A flat payroll tax and state income tax rate is applied to the basic needs budget. Payroll tax is a nationally representative rate as specified in the Federal Insurance Contributions Act.xvii

Footnotes

  1. OMB published revised geographic boundaries in OMB bulletin 10-02 (December, 2009). Documentation is available at http://www.whitehouse.gov/sites/default/files/omb/assets/bulletins/b10-02.pdf (last accessed 3.30.2014).
  2. The file Food_Cost_2013.csv contains values used for the food costs component of the living wage calculator. This file is provided on the documentation DVD and a data dictionary is included in Appendix I.
  3. The values used in the food component are from the official USDA low-cost food plan through June, 2013 available at http://www.cnpp.usda.gov/Publications/FoodPlans/2013/CostofFoodJun2013.pdf (last visited 3.30.14). June costs for each year are used to represent the annual average. The various USDA food plans are available at http://www.cnpp.usda.gov/USDAFoodCost-Home.htm (last visited 3.30.2014).
  4. The file ChildCare_Cost_2012.csv includes data downloaded from Child Care in America 2013 state fact sheets (last visited 3.30.2014). This file and report are included on the documentation DVD. A data dictionary is included in Appendix I.
  5. This model uses 2012 estimates for child care as published in the National Association of Child Care Resources and Referral Agencies Parents and the High Cost of Child Care: 2013 Report, available at http://usa.childcareaware.org/sites/default/files/Cost%20of%20Care%202013%20110613.pdf. (last visited 3.30.2014) A copy of this report is included on the documentation DVD.
  6. Inflation multiplier for 2010=1.076700481, 2011=1.043754084; 2012=1.022592054; and 2013 = 1.007829771. BLS inflation calculator is available at http://www.bls.gov/data/inflation_calculator.htm (last visited 3.30.2014)
  7. For many low-income families, the assumption that their employer provides health insurance may be overly optimistic. Indeed and as documented by the Employee Benefit Research Institute, the offer rates of health insurance vary substantially by gender, level of education, and income (Available at http://www.ebri.org/pdf/briefspdf/EBRI_IB_04-2012_No370_HI-Trends.pdf) (last visited 3.30.2014)(included on documentation DVD). However, we felt comfortable with the assumption that the employer subsidizes coverage because our optimism likely produces living wage estimates that are below the living wage needed. Considering all factors and the unavoidable granularity of any living wage estimator, we felt that this decision was justified.
  8. Inflation multiplier for 2010=1.076700481, 2011=1.043754084; 2012=1.022592054; and 2013 = 1.007829771. BLS inflation calculator is available at http://www.bls.gov/data/inflation_calculator.htm (last visited 3.30.2014)
  9. The file House_Cost_2014.csv contains county and sub-county level data used to estimate the housing component of the living wage calculator and is included on the documentation DVD. A data dictionary is included in Appendix I. HUD provides sub-county data and defines the corresponding metropolitan area for sub-county data as a “HUD Metro Fair Market Rent Areas,” (HMFAs) when revised OMB definitions encompass area that is larger than HUD's definitions of housing market areas. More information can be found in HUD’s Fair Market Rent Overview documentation http://www.huduser.org/portal/datasets/fmr.html (last accessed 3.30.2014).
  10. HUD provides sub-county data and defines the corresponding metropolitan area for sub-county data as a “HUD Metro Fair Market Rent Areas,” (HMFAs) when revised OMB definitions encompass area that is larger than HUD's definitions of housing market areas. More information can be found in HUD’s Fair Market Rent Overview documentation http://www.huduser.org/portal/datasets/fmr.html (last accessed 3.30.2014).
  11. The file Transportation_Cost_2012.csv contains data from the 2013 Consumer Expenditure Survey, Table 1400 and is included on documentation DVD. A data dictionary is included in Appendix I.
  12. Inflation multiplier for 2010=1.076700481, 2011=1.043754084; 2012=1.022592054; and 2013 = 1.007829771. BLS inflation calculator is available at http://www.bls.gov/data/inflation_calculator.htm (last visited 3.30.2014)
  13. The file Other_Cost_2012.csv contains data from the 2013 Consumer Expenditure Survey, Table 1400 and is included on documentation DVD. A data dictionary is included in Appendix I.
  14. The file Other_Region_2012 contains data from the 2013 Consumer Expenditure Survey, Table 1800 and is included on the documentation DVD. A data dictionary is included in Appendix I.
  15. Inflation multiplier for 2010=1.076700481, 2011=1.043754084; 2012=1.022592054; and 2013 = 1.007829771. BLS inflation calculator is available at http://www.bls.gov/data/inflation_calculator.htm (last visited 3.30.2014)
  16. The file Taxes_2013.csv contains data used to calculate the tax component of the living wage calculator. A data dictionary is included in Appendix I.
  17. The payroll tax rate (Social Security and Medicare taxes) is 6.2% of total wages as of 2013.

Compiled April 20, 2015