Living Wage Action Coalition

The following is a breakdown of how both the Economic Policy Institute (EPI) and Wider Opportunities for Women (WOW) calculated a living wage for Washington, DC. The methodology is nearly identical in all of both organizations' studies and can be used to clarify how one arrives at the wage rate for a given area.

Both WOW and EPI provide a figure based on Fair Market Rents (FMRs) as described in the WOW report. The U.S. Department of Housing and Urban Development annually calculates housing costs for every metropolitan housing market and non-metropolitan county and publishes FMRs for these given areas. “FMRs are gross rent estimates. They include the shelter rent plus the cost of all utilities, except telephones... FMRs determine the eligibility of rental housing units for the Section 8 Housing Assistance Payments program. Section 8 Rental Certificate program participants cannot rent units whose rents exceed the FMRs.”[1]

The 1988 Family Support Act required states to fund or reimburse child care needed by those on welfare or leaving welfare at market rate, which was defined as the 75^th percentile.[2] This rate was calculated by a mandated survey of childcare costs. This survey is conducted in Washington, DC as well as most states.

Child care costs are the average cost per state at child care centers. While ideally EPI would have like to use child care costs by county no consistent data source for child care by county is available. Therefore, EPI used average child care costs by state. Most state averages are from the Children’s Defense Fund’s “The High Cost of Child Care Puts Quality Care Out of Reach for Many Families.”

The USDA Low-Cost Food Plan is calculated by the U.S. Department of Agriculture, which calculates it to be 25% more than the Thrifty Food Plan. While both plans satisfy minimum nutrition standards, the Thrifty Food Plan was meant for emergency use only. The Low Cost Food Plan is a minimum but sustainable nutrition standard intake.

Food costs are also based on the USDA’s Low-Cost Food Plan. Again, the USDA food plans represent the amount families need to spend to achieve nutritionally adequate diets. Food cost estimates are the same for the whole nation (the Bureau of Labor Statistics found that food costs vary little by region).

This calculation assumes residents of Washington, D.C. use public transportation. Data for public transportation costs are based on the average cost of commute using both metro and bus.

Transportation costs are based on the costs of owning and operating a car. EPI derived these costs from the average miles driven per person according to the size of the DC area (from the Nationwide Personal Transportation Survey[5]). Costs per mile are from the IRS cost-per-mile rate, which includes the cost of gas, insurance, vehicle registration fees, maintenance, and depreciation.[6]

This calculation assumes that the employer provides health insurance coverage and that the employee will pay one third of the cost of the health insurance premium, which is the average national proportion. Data is based on the National Medical Expenditure Survey and the Families USA report.

In calculating health care costs, EPI took into account the fact that 40% of families do not receive health insurance through their employers. EPI assumed that workers who do not have health insurance through their employers or through Medicaid would purchase health insurance through a non-group plan. Thus, health care costs are based on a weighted average cost of employer-provided health insurance and the cost of purchasing a non-group plan. EPI used the same cost of health insurance for the whole state, as they found that non-group plans did not vary significantly within states. Data also obtained from the Medical Expenditure Survey; out-of-pocket costs are from “Hidden from View: The Growing Burden of Health Care Costs” from Consumer’s Union (1999 dollars).

Taxes include state sales, federal, state income and payroll taxes. Data is found in the 1998 Commerce Clearinghouse State Tax Handbook and takes into account property, low-income and child and dependent tax credits.

Citizens for Tax Justice (CTJ) computed the taxes for the tax year 1999. Taxes include federal personal income taxes, federal Social Security and Medicare payroll taxes. CTJ calculates taxes based on the after-tax incomes necessary to meet basic needs. It calculated the pretax incomes necessary for families to achieve this after tax income.

Other necessities are calculated to be 10% of all other costs, and include items such as clothing, shoes, paper products, diapers, nonprescription medicine, cleaning products, telephone and personal hygiene items. This percentage is a conservative estimate in comparison to other estimates in basic needs budgets, which use 15%.

The cost of other necessities includes the cost of telephone, clothing, personal care expenses, household supplies, reading materials, school supplies, union dues, bank fees, television, music, and toys. EPI derives these costs from the Federal Communications Commission and the Consumer Expenditure Survey, and calculates that these costs are 31% of housing and food costs.

As of extensive studies done by Wider Opportunities for Women in 1998 and the Economic Policy Institute in 1999, the below defined costs are calculated assuming a family of four with two working adults. All costs are monthly, unless otherwise indicated.

An hourly wage of $12.48 was a living wage in 1998 for WOW and $11.87 for EPI. Calculated for the local D.C. rate of inflation, a sufficient 2004 total compensation per hour would be $14.93 for WOW and $13.95 for EPI (2004 D.C. and Baltimore rate of inflation divided by 1998 rate of inflation multiplied by 1998 WOW self sufficiency standard: 120.9 / 101.0 x $12.48 = $14.93 and 2004 DC and Baltimore rate of inflation divided by 1999 rate of inflation multiplied by 1999 EPI Living Wage: 120.9 / 102.8 X $11.87= $13.95)

[1] U.S. Department of Housing and Urban Development. 1997. “Fair Market Rents for the Section 8 Housing Assistance Payments Program Fiscal Year 1998; Final Rule” Federal Register, Volume 61, number 184, September 20. (and) Macro International, Inc. July, 1998, FMR Telephone Survey Results Summary: Washington DC-MD-VA Fair Market Rent Area, submitted to the metropolitan Washington Council of Governments, Washington, D.C.

[2] Since the WOW study, as well as the EPI study, calculates for two children and does not specify an age, WOW took an average of the costs for child care at different ages calculated to the 75^th percentile.

[3] U.S. Department of Agriculture. 1998. “Cost of Food at Home Estimated for Food Plans at Four Cost Levels, June 1998, U.S. Average” Washington, DC: Center for Nutrition Policy and Promotion.

[4] American Automobile Manufacturers Association. 1996. Motor Vehicle Facts and Figures, 1996. Washington, DC: AAMA.

[5] Average miles per person from http://www-cta.ornl.gov/npts/1990/fat/index.html.

[6] http://www.irs.ustreas.gov/prod/forms_pub/pubs/p4630401.htm

[7] U.S. Department of Health and Human Services. 1987. National Medical expenditure Survey. Rockville, MD: DHHS.

[8] CCH Editorial Staff Publication. 1998. 1998 State Tax Handbook. Chicago: CCH Incorporated. (and) District of Columbia Government, Office of Tax and Revenue, 1998, “Individual Income Tax Booklet.”