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Living Wage is a project put together by Dr. Amy K. Glasmeier and the Massachusetts Institute of Technology
What is the 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.
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
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
Living Wage is a project put together by Dr. Amy K. Glasmeier and the Massachusetts Institute of Technology
What is the 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.
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
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