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Chapter 5. The Cost of Living
- Brookings Institution Press
- Chapter
- Additional Information
The analysis of nominal work support benefit generosity presented in chapter 4 neglects three important considerations: (1) there are differences in living costs across the fifty states and the District of Columbia; (2) the federal poverty standard is a single national standard and does not reflect subnational and substate variation in living costs; and (3) the federal poverty standard is not adequate as a measure of self-sufficiency. To address these concerns, in this chapter estimates of state benefit generosity are adjusted according to the cost of housing in the fifty states and the District of Columbia , and nominal income and benefit estimates are compared to basic family budgets to assess the extent to which the work support system allows needy working families to become self-sufficient.1 This approach raises an important question, discussed briefly in chapter 1: what is the meaning of self-sufficiency when the work support system links receipt of means-tested benefits to work? One possible standard is that people are self-sufficient when they accept the responsibility of working to support themselves and their family. Certainly, all the combinations of earned income and work support benefits that we consider allow an individual to meet this standard, because the benefit estimates are conditioned on work. Another possible standard is that means-tested benefits should constitute less than 50 percent of total income.2 Whether the needy working family we consider meets this standard depends on the extent to which it par102 5 The Cost of Living 1. For basic family budgets, see Bernstein, Brocht, and Spade-Aguilar (2000); Boushey and others (2001). 2. Department of Health and Human Services (1997). 05-8191-1 ch05 11/2/05 4:20 PM Page 102 ticipates in the work support system. Full participation implies that the majority of the family’s material support comes from means-tested program benefits. However, if needy workers only receive tax and school meal benefits , the majority of the family’s material support is earned income. A third possible standard is the absence of participation in cash assistance welfare.All of the scenarios we consider assume that the head of a family of three emerged from the cash assistance welfare system more than one year ago. If she is a full-time minimum wage worker, she is self-sufficient by this standard in all but fifteen states because she is no longer TANF eligible, and she will eventually exhaust her eligibility for TANF benefits in all fifty states and the District of Columbia. If she works half time at minimum wage, she is selfsufficient by this standard in only ten states in month thirteen of employment . Of course, if she receives only tax and entitlement benefits or tax and school meal benefits, she is self-sufficient by this standard regardless of work effort. Our view of self-sufficiency is related to need: the family is minimally self-sufficient when the income and benefit total provided by the work support system meets the family’s needs. In this chapter basic family budgets serve as the standard of need. Cost-adjusted estimates of work support benefits more accurately reflect the real value of the material support the system provides. The same nominal benefits do not provide the same purchasing power or an equivalent lifestyle in every state and locality across the United States. Without cost-of-living adjustments, state generosity may be misunderstood. In fact, analysis of the adjusted estimates affects one’s understanding of the relationship between states’ discretionary policy decisions and state generosity. Although the association between states’ decisions and nominal work support generosity is clear, the association between state discretionary policy choices and costadjusted generosity is more ambiguous, because the states that enhance generosity also tend to have high costs of living. Our evidence suggests that these more generous benefits only partially compensate residents for higher living costs. Comparisons of nominal work support benefits with basic family budgets reveal that although most states provide sufficient support for a minimal lifestyle in low-cost areas, typically they do not provide enough in high-cost areas. This suggests that the limitations of the work support system are more serious in large metropolitan areas, where living costs tend to be higher. The District of Columbia, as an exclusively urban area, makes this point clearly: Although it is among the ten most generous states in nominal terms (see table 4-1), the analysis we will present in this chapter shows that the District of The Cost...