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Refining Measures of Economic Stability: The 2005 Self-Sufficiency Standard for Indiana

Senior Policy Analyst, Indiana Institute for Working Families, a program of the Indiana Coalition on Housing and Homeless Issues

Several methodologies have been developed to estimate the amount of income it takes for families to pay for their basic needs in today’s economy. In large part, this has been a response to the outdated formula used to calculate the United States federal poverty level (FPL) threshold. The poverty threshold, developed in the 1960s, is based on a ratio of food costs and does not reflect the fact that health care insurance, childcare, and housing, for example, now dwarf the typical family’s food costs. In addition, the threshold makes no adjustment for geographic differences in costs; it assumes that living in New York City costs the same as living in rural Indiana. As a result of these limitations, researchers across the country have created new methods that take into account actual costs on a regional or county basis.

In the fall 2005 edition of the Indiana Business Review, the article “Economic Self-Sufficiency: The Minimum Cost of Family Support in Indiana’s Metropolitan Areas” authored by Jon Bingham, M.A., and Dagney Faulk, Ph.D., of Indiana University Southeast presented a regionally based economic self-sufficiency measure for seven different family types. The methodology used in Bingham and Faulk’s article is similar to another existing measure of income adequacy in Indiana: the Self-Sufficiency Standard (see Figure 1).

Figure 1
Self-Sufficiency Comparison for Two Adults and Two School-Age Children

Figure 1

Click for more detailed image

Since 1998, the Indiana Coalition on Housing and Homeless Issues (ICHHI) has collaborated with Diana Pearce, Ph.D., from the University of Washington and the national organization, Wider Opportunities for Women (WOW), to produce the Self-Sufficiency Standard for Indiana. The third edition of the Self-Sufficiency Standard was released in September 2005, with previous editions published in 1999 and 2002. The University of Washington and WOW have successfully completed Self-Sufficiency Standard projects in 35 states, plus the District of Columbia metro area and New York City.

The Self-Sufficiency Standard differs from existing measures in two important ways: 1) it utilizes a more refined methodology by incorporating county-level data where available, and 2) it presents a broader scope of data through calculating income amounts for over 70 different family types in each of Indiana’s 92 counties. (For the remainder of this article, the Self-Sufficiency Standard developed by Diana Pearce, Ph.D., will be referred to as the SSS.)

Methodology

Table 1 compares the methodology of the SSS with the methodology used to calculate the regional measure by Bingham and Faulk. Both measures take into account the same cost areas and the methodologies are similar, though not identical. For example, each includes the financial impact of food, housing, childcare, transportation, health insurance, taxes, and tax credits on a family’s budget. Both also include a miscellaneous cost category but are very conservative with neither measure including line items for savings, retirement, vacations, etc. However, because of different assumptions—such as health insurance coverage and transportation costs—the income numbers are slightly different. More importantly, the refined methodology used in the SSS allows for the calculation of county-level income amounts as well as data for over 70 family types. In contrast, the Bingham and Faulk measure calculates income amounts for just seven family types and assumes all counties within the MSAs have identical costs of living. There are no income amounts calculated for counties falling outside the thirteen MSAs, leaving out most rural areas in the state.

Table 1
Methodological Comparison of Indiana Self-Sufficiency Standard and Economic Self-Sufficiency Measure

Table 1

Click for pdf of table 1

Table 2 details the hourly SSS wage for four family types across a select number of counties in Indiana. In general, the SSS tends to be lower in rural counties and higher in urban areas. For example, in Lake and Marion counties, more income is needed to cover basic costs. The family income required (i.e., wage adequacy) is also impacted by the number of children and their ages. For example, childcare for an infant or preschool-age child is obviously more expensive than that of a school-age child, and the SSS reflects those differences.

Table 2
Self-Sufficiency Standard Hourly Wages for Selected Counties by Family Type

Table 2

Utilizing Alternative Measures of Income Adequacy

Comparison Tool. The SSS can be contrasted with several other income benchmarks. Median family income in Delaware County for a family of three was $47,500. The SSS for this family was $29,771, almost double the FPL of $16,090 (see Figure 2). If the parent was working full-time at minimum wage, he or she would earn $5.15 an hour in Indiana—or $14,333 annually. If the family was receiving cash assistance through Temporary Assistance for Needy Families (TANF—the traditional “welfare” program) and receiving the maximum in food stamp benefits, they would receive $8,172 annually, an amount that would decline as the parent began working and earnings increased.

Figure 2
The Self-Sufficiency Standard Compared to Other Benchmarks, 2005
(Based on the Self-Sufficiency Standard for a Family with One Adult,
Preschooler and School-Age Child in Delaware County)

Figure 2

Program and Policy Development. The SSS can be used to develop new programs and policies. The United Way of La Porte County, in collaboration with other partners, has used the SSS to spearhead an innovative childcare initiative. This initiative seeks to address the gap between where eligibility for the childcare voucher program for low-income families ends and where the SSS begins. To qualify for a childcare voucher in Indiana, a single parent family with two children can earn no more than $9.62 an hour. In La Porte County, a single parent with an infant and preschool-age child who earns less than $14.16—a hourly wage falling below the SSS—can receive a subsidy to pay for childcare.

Table 3 uses Marion County data to model the impact work support programs—such as childcare vouchers—have on wage adequacy. A childcare voucher alone brings a full-time minimum wage worker with one preschooler and one school-age child up to an 84 percent of wage adequacy as compared to the SSS. Without that voucher, the same worker achieves just 56 percent of wage adequacy. This demonstrates the critical role that childcare assistance plays in enabling low-wage workers to enter and remain in the workforce. More individuals in the workforce result in a stronger tax base and more vibrant state and local economies.

Table 3
Impact of Work Support on Wage Adequacy, Single Parent with a Preschooler and a School-Age Child, Marion County, 2005

Table 3
Click for larger image

Use in Economic, Workforce, and Education Systems. The SSS has been used extensively throughout the economic, workforce, and education systems in several states, including Indiana. In economic development, the SSS has been used to conduct targeted sector analysis and evaluate business development and tax abatement proposals. For example, when a business is interested in locating into a county, how do the business’s wages compare to the SSS? What will the difference between wages and the SSS mean to the taxpayers in that community if the gap is significant? For example, will children of workers qualify for publicly financed health insurance, and how much will that cost Indiana taxpayers? Will the gap put pressure on local service providers, such as food banks and pantries? This information can help economic development officials determine incentive packages accordingly. The SSS has been used in this way in the north central Indiana workforce region.

Within workforce development, the SSS has been used by regional or local workforce investment boards to determine priorities for limited training dollars. If the worker’s income falls below the SSS, training dollars are made available. The SSS has also been used within the WorkOne system as a counseling tool with dislocated, unemployed and underemployed workers. How do wages of various occupations compare with a worker’s standard? Could advanced training and education assist that worker in achieving self-sufficiency? In Illinois, an online Self-Sufficiency Standard calculator is housed within the Department of Employment Security and used extensively throughout their workforce development system.

In education, the SSS has been used in career counseling with high school and college students in conjunction with the Census Bureau data on average earnings of higher education graduates. Using these two data sources shows what the student needs to earn to support themselves and how higher education can help them to achieve that goal. This can make a compelling case not just for pursuing advanced degrees but as a technique to retain students.

Conclusion

Over the past several years, thousands more families have fallen into poverty. But what do these numbers really tell us? The FPL is obviously inadequate as a measure of need and fails to reflect actual costs of living, even at the most basic level. Clearly, a broader discussion of wages and income must take place across the state. Self-sufficiency is often cited as a goal for low-income families in Indiana. It is important to be very specific about what that goal represents. Continuing debate and research on appropriate measures of self-sufficiency are essential to design effective programs and policies that help families achieve that goal. The Self-Sufficiency Standard provides a solid, research based context to frame this discussion as well as a tangible goal for the solutions.

Hourly Self-Sufficiency Wages Needed for Support for a Single Parent with One Infant and One Preschooler

Figure 3

Click for larger image

Notes

  1. For a thorough discussion of the poverty threshold, see Gordon M. Fisher, The Development of the Orshansky Poverty Thresholds and Their Subsequent History as the Official U.S. Poverty Measure, 1992. Online: www.census.gov/topics/income-poverty/supplemental-poverty-measure.html.
  2. The 2005 Self-Sufficiency Standard for Indiana: Where Economic Independence Begins is available online at www.cencomfut.com/poverty/28.htm#Intro.
  3. Data for all family types are available by contacting Jill Nielsen-Farrell at the Indiana Coalition on Housing and Homeless Issues at jnielsen@ichhi.org.
  4. The SSS uses the U.S. Department of HUD calculation of median family income which uses Core-Based Statistical Areas. HUD’s methodology differs slightly from the Census Bureau’s calculation for median family income. A description can be found at www.huduser.org/datasets/il/IL05Est/FY05-CBSA-medians-calculation-methodology.pdf.
  5. It is important to note that Indiana’s TANF program has rigorous eligibility and work requirements as well as a two-year time limit on benefits.
  6. There is currently a waitlist of several thousand children for childcare vouchers in Indiana. In Fiscal Year 2005, Indiana had a monthly average waitlist of 7,600 children. The La Porte County initiative will also serve families who are eligible but on the waitlist so they can immediately find and maintain employment.
  7. See www.ides.state.il.us/calculator.