The Nashville Movement

Nashville Living Wage Estimate

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by: Dr. Melissa Snarr,  Diane Faires [1]

Vanderbilt University

Middle TN Jobs With Justice Organizer: Megan Macaraeg, megan.macaraeg@Gmail.com

Jobs with Justice’s (JwJ) mission is to improve working people’s standard of living, fight for job security, and protect workers’ right to organize. www.jwj.org . Interfaith Worker Justice (IWJ) calls upon our religious values in order to educate, organize, and mobilize the religious community in the U.S. on issues and campaigns that will improve wages, benefits, and working conditions for workers, especially low-wage workers. www.iwj.org

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Nashville Living Wage Estimate, 2007

Introduction

A living wage “affords the earner and her or his family the most basic costs of living without need for government support or poverty programs.” [2] Three independent agencies, the Economic Policy Institute (EPI), Wider Opportunities for Women (WOW), and Solutions for Progress (SFP) provide living wage estimates for various locations across the United States. All of these estimates are based on the cumulative calculated costs of housing, child care, food, transportation, health care, miscellaneous necessities, and taxes. A living wage estimate does not include money spent on entertainment or savings of any kind. Following the EPI, WOW, and SFP methodologies and sources for calculating a very basic family budget, Middle Tennessee Jobs with Justice has determined the following numbers for Nashville-Davidson County in 2007.

Family Demographics

WOW, EPI, and SFP calculate living wages for a number of different family types. In determining a living wage, it is difficult to adequately represent all the varying types of families that may be represented. Some employees inevitably will have more (perhaps many more) than two children—not to mention elderly dependents, and others may be single parents; in either case, the hourly wage necessary to provide for one’s children would increase dramatically. It is also the case that some employees have no children or only one child; in this case, the wage necessary for “self-sufficiency” would decrease drastically. As a family of four with two working adults is a middle ground and the predominant standard used by EPI and most other living wage groups. The family budget derived from the mentioned components is, therefore, divided by two and by fifty-two forty-hour work weeks in order to estimate what a living wage would be if both parents were earning the same income. Additionally, because the age of the children in a family affects the costs incurred, it is important to note that this estimate again uses EPI’s standard and assumes one pre-school-aged child and one school-aged child. This decision marks a compromise as childcare costs go down as children’s age goes up while food costs increase with increased age.

Hourly Living Wage = Self-Sufficiency Family Budget (2Adults/2Children)

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2 x (52 weeks x 40 hours a week)

Housing & Utilities

The cost of housing is based on the Fair Market Rents provided by the U.S. Department of Housing and Urban Development. The Fair Market Rent is the highest rental rate at which the Department of Housing and Urban Development will reimburse low-income families under the Section 8 Housing Assistance Payments Program, and is based on 40^th percentile rental costs. The calculation for the Fair Market Rent includes rent and utilities for “decent, [structurally] safe, and sanitary rental housing of a modest (non-luxury) nature.” [3] The 2007 FMR rate for a two-bedroom unit in Nashville-Davidson County is $693 per month. [4] This rate includes all utilities except for telephone, which we calculate at $12.64 a month based on AT&T’s most basic service in Davidson County. [5]

Fair Market Rate (2 bedroom): Davidson County (includes all utilities besides telephone)	$693
Telephone	$12.64
TOTAL	$705.64

Child Care

WOW’s methodology for determining Child Care costs assumes one pre-school age child and one school-aged child and is as follows:

The Standard uses the most accurate information available…In most states, this is the survey of child care costs originally mandated by the Family Support Act, which provides the cost of child care at the 75th percentile, by age of child and setting (family day care home, day care center, etc.) [6] For Tennessee, the Standard uses data from a February 2002 Statewide Market Rate Survey of Full Time Child Care Rates for Infants, Toddlers, 2 Year Olds, 3 Year Olds, 4 Year Olds and 5 Year Olds and a Market Rate Survey of Before, After and Before and After School Rates for School Aged Children of Tennessee, provided by the Child Care Services section of the State of Tennessee Department of Human Services. The rates given are averages specified by age…Data from Tennessee’s Department of Human Services most recent Child Care Assistance Program Market Rate Survey and Child Care Provider Reimbursement Rates were applied to this report to create a ratio for approximating rates given for the 75^th percentile.

Because it is more common for very young children to be in day care homes rather than day care centers, [7] the Standard assumes that children two years of age and less (infants, toddlers and two-year olds, called “infants” here) receive full-time care in day care homes. Preschoolers (three, four and five year olds), in contrast, are assumed to go to day care centers fulltime. School age children (ages 6 to 12) are assumed to receive part-time care in before and after-school programs. Ratios were created from the state’s Child Care Assistance Market Rate Survey to differentiate rates for home child care and child care in centers. [8]

Based on the “State Plan for CCDF Services – Tennessee for the period 10/1/07 – 9/30/09” the self-sufficiency standard for child care in Davidson County in 2007 for one preschool-aged child (2+ years old) is $508.78 per month, and for one school-aged child (requiring only before and after-school care) is $258.93 per month, for a total family child care budget of $767.71 per month. [9]

One preschool aged child (Davidson Co. Market Rate)	$508.78
One school aged child (Davidson Co. Market Rate)	$258.93
TOTAL	$767.71

Food

Both WOW and EPI take food budgets from the U.S. Department of Agriculture’s most recent Low-Cost Food Plan. The Low-Cost Food Plan is 25% more than the Thrifty Food Plan, and while both plans satisfy “minimum nutrition standards,” the Thrifty Food Plan is meant for emergency use only and not sustainable. The family of four is calculated as including a couple aged 20-50 years, and gives the option of a calculation including a two-year-old child and one aged 3-5 years or a calculation including one child aged 6-8 years and the other aged 9-11 years. Because in the child care category, this study used the calculation based on child care for older children, for food costs, this study also bases its budget on food needs for older children. The Low-Cost Food Plan assumes that all meals and snacks are bought at stores and prepared at home. Considering the 2005 Consumer Expenditure Survey finds that food away from home that accounts for 44% of all spending on food for households and 35% of all spending for food for households in the lowest quintile of income, [10] the choice of the low-cost food plan is a decidely conservative estimate. In May 2007, the food budget for the Low-Cost Food Plan was $699.10. [11]

Low-Cost Food Plan (USDA)

$699.10

Transportation

To determine transportation costs, we use WOW’s methodology to assess public transportation adequacy and then utilizes EPI’s methodology to calculate private transportation needs:

From WOW: “If there is an adequate public transportation system in a given area, it is assumed that workers use public transportation to get to and from work. A public transportation system is considered “adequate” if it is used by a substantial percentage of the population to get to work. According to the Institute of Urban and Regional Development, if about 7% of the total public uses public transportation, which “translates” to about 30% of the low- and moderate- income population. [12] Since only 2% of Nashville’s population…use public transportation it is assumed that employed adults throughout Tennessee require a car. [13] If there are two adults in the family, we assume they need two cars. (It is unlikely that two adults with two jobs would be traveling to and from the same place of work at exactly the same time).”

From EPI: “Transportation costs are based on the costs of owning and operating a car. We employ the National Travel Household Survey (NTHS) to derive the average cost of miles driven per month by size of the metropolitan statistical or rural area multiplied by the cost-per-mile. NTHS calculates average trip lengths for five MSA sizes and for areas not in an MSA. ⁴ …Transportation costs per mile are from the IRS cost-per-mile rate, which includes the cost of gas, insurance, vehicle registration fees, maintenance, and depreciation…Our calculation of transportation costs include only costs for non-social trips--i.e., work, school, church, and errands--for the first adult, and costs for work trips for the second adult. The formula we used to derive those transportation costs is:

[(% work & non-social trips 1st adult)/100 * Average miles/month/MSA * (IRS cost/mile)] plus [(% work trips 2nd adult)/100 * Average miles/month/MSA*(IRS cost/mile)]

It is a fairly complicated procedure to get to the final cost calculations, as several NHTS data series are employed in the equation. Detailed analyses of the transportation cost calculations are in Appendix B of [EPI’s] paper.” [14]

It should be obvious that transportation costs, as calculated by EPI are very conservative, as they exclude all social or recreational trips. Moreover, the methodology relies on data from the 2001 NHTP survey and thus increase in commutes within the last six years are cannot be reflected. Nonetheless, EPI (and others) find the NHTP the most reliable transportation data and thus the current cost of transportation in Nashville according to our standard is $462.91 per month.

Average Miles per month (974) x Percentage of work, non-social trips (.69) x IRS cost per mile rate (.485 [15] )	325.92
Average miles per month (974) x Percentage of work trips (.29) x IRS rate (.485)	136.99
TOTAL	462.91

Health Care

Metro Nashville’s employee benefits package offers a number of choices for both medical and dental coverage and prescription drug coverage for all full time employees. For this estimate, the plans with higher monthly payments and lower co-payments and deductibles were preferred to those with lower monthly payments that in turn risk more severe financial setbacks in the event of major or persistent illness. The current monthly premium for the combined family packages of Blue Cross Blue Shield PPO ($284) and Cigna PPO ($44.74) is $328.74. Co-pays for office visits are $10 + 20% of allowable charges, emergency room visits are $50 + 20% of services. Under the prescription drug benefit, the co-pay for generic drugs is $10 and $20 for formulary drugs. There is no dental deductible and a flat dollar rate for most major services. [16] According to federal government’s Medical Expenditure Panel’s Survey, the average out-of-pocket expense for health-care in 2003 was $95.48. [17] Adjusted for inflation [18] , this comes to $117.44. Adding this to the premium rate, monthly health care expenses come to $474.01.

Premium: Blue Cross Blue Shield PPO	$284.00
Premium: CIGNA PPO Family	$44.74
Out of Pocket Expenses (national average + CPI adjustment)	$117.44
TOTAL	$446.18

Other Necessities

Wider Opportunities for Women calculates that “Other Necessities” will be approximately 10% of all expenditures before taxes are taken into account. This category includes items such as clothing, diapers, non-prescription medication, personal hygiene items, etc. 10% represents a conservative estimate as many other “basic needs budgets” calculate based on a rate of 27% of housing and food costs (EPI). In 2007, 10% of all expenditures before taxes is $306.82. The total cost of the first five expenditures for 2007 is $3080.84 per month. Ten percent of this figure is $308.08.

Other Necessities = 10% of all expenditures before taxes

$308.08

Taxes

WOW’s methodology on computing taxes includes various tax credits, county-by-county sales taxes, payroll taxes (7.65% as set by federal government), and federal income tax. The standard payroll tax required by the federal government is 7.65%. Using the base pay required to pay the first six categories of expenses, a payroll tax on $3338.92 is $259.25. The current state TN sales tax is 6% on non-prepared food and 7% on other items. Davidson County adds an additional 2.25% on top of this figure. [19] For the 2007 sales tax estimate, this study adds 9.25% sales tax on its 2007 miscellaneous estimate ($308.08) for $28.49, and a 8.25% sales tax on its 2007 food estimate ($699.10) for $57.67 or a cumulative tax estimate of $86.05.

Because their income is above $38,348, the Earned Income Tax Credit does not apply. The family does however qualify for child tax credits totaling $2000 (or $1000 a child). Using the 2007 1040 tax return [20] , the study concludes that the family would receive a $1736 refund from the federal government, amounting to $144.66 if calculated monthly. In total, the family then pays $200.75 a month in taxes.

Sales Tax on Food (8.25%)	$28.49
Sales Tax on Other Necessities (9.25%)	$57.67
Payroll Tax (7.65%)	$259.25
Income Tax Return (includes Child Tax Credits)	(-$144.66)
Total	$200.75

Conclusion

Given the method followed above, this study determines that in Nashville, a family of four with two working adults, one preschool-aged child, and one school-aged child that receives it’s health care from Metro Nashville Government would need a cumulative yearly income of $43,413. Therefore, a Living Wage for a Nashville Government Employee would be $10.35/hour.

WOW - 2002	LIVE - 2005	Metro Nashville - 2007
Housing	660	654	705.64
Childcare	678	739	767.71
Food	544	652.5	699.10
Transportation	393	428.37	462.21
Health Care	255	397.82	446.18
Other Necessities	253	287.16	308.08
Taxes	357	369.11	200.75
Monthly Budget	3140	3527.96	3589.67
Yearly Budget	37680	42335.52	43076.04
Hourly Wage	$9.06/hour	$10.18/hour	$10.35/hour

Indexing a Nashville Living Wage

A wage level that does not rise with the demands of consumer prices effectively falls each year. In order to insure that the most vulnerable workers maintain the necessary income levels without continually having to lobby for wage increases, our study proposes an annual indexing of the living wage floor tied to the Consumer Price Index (Universal). We follow the Economic Policy Institute’s rationale for this method of indexing.

Other federal and state laws routinely use indexing to ensure that benefits and other dollar values do not lose their value to rising prices. Indexing the minimum wage is a common policy in many other countries and is becoming increasingly common among the U.S. states that have their own minimum wage laws. Indexing the minimum wage assures that low-wage workers do not lose ground to rising prices—ground they can ill-afford to lose—and offers their employers predictable and steady changes in the legal standard.

Many states…have used forms of the BLS's consumer price index (CPI), which is used for indexing a wide variety of federal and state benefits, exemption levels in the tax law, and pension benefits; it is also widely used in private sector contracts. There are a number of versions of the CPI to choose from, each widely used for government or private sector indexing.

Consumer Price Index—All Urban Consumers (CPI-U). The title for this index is somewhat misleading in its use of the word "urban," since the index covers 87% of the U.S. population. The only populations excluded are those serving in the military, the institutionalized population, and those living in isolated locations. At least a portion of every state is included. Because it would be impractical for the BLS to collect prices from every transaction within the covered areas, it relies on a carefully constructed sample of 87 locations in determining price changes. The sample has been selected to be representative of the entire population covered by the CPI-U.

Consumer Price Index—Urban Wage Earners and Clerical Workers (CPI-W). This subset of the CPI-U, covering employed wage earners and clerical workers, is designed to reflect the changes in prices faced by working Americans. In practice, it tracks the CPI-U closely. It is, notably, the index used to adjust Social Security benefits.

Consumer Price Index for Specific Areas. The BLS others versions of the CPI-U and CPI-W to cover four regions of the country (Northeast, Midwest, West, South) and 27 metropolitan areas.

There are merits to each of these as an index for the minimum wage. The CPI-U is the most widely known of the indexes, the CPI-W is most closely targeted at the costs faced by workers, and the area indexes are useful indicators for the areas they cover. The choice for most states has been based on which indexes they use in their other laws. [21]

At the beginning of the fiscal year of each year, the living wage floor for the previous year should be increased by the Consumer Price Index-U, effectively maintaining its buying power with the rate of inflation. Correspondingly, the Nashville living wage estimate will be recalculated every August to reflect increases according to the Consumer Price Index, following the practice of major federal and state programs.

Annual Index (Previous Living Wage Floor x CPI-U)

Determined End of Fiscal Year

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[1] This white paper is a significant revision and update to the Living Income for Vanderbilt Employees (LIVE) calculation for Vanderbilt University living wage. Special thanks to Peter Gray for his work on the original LIVE estimate in 2005. We are grateful to Dr. Dan Cornfield (Vanderbilt University: Center for Nashville Studies) for his review of the document. Diane Faires research time was funded through the Center for Ethics: Global Feminisms Collaborative at Vanderbilt University, www.vanderbilt.edu/gfc.

[2] “What is a Living Wage?” Living Wage Action Center. Site Accessed: October 11, 2005.

http://www.livingwageaction.org/info_basics.htm.

[3] Department of Housing and Urban Development. Site Accessed November 5, 2007. http://www.huduser.org/Datasets/FMR/FMR2005R/Revised_FY2005_FMR_Preamble.pdf

[4] Department of Housing and Urban Development. Site Accessed November 5, 2007. http://www.huduser.org/datasets/fmr/fmrs/index.asp?data=fmr07

[5] http://www.connecttoatt.com/bellsouth/local-phone.html accessed 2/11/08.

[6] From WOW’s methodology: “Under the 1988 Family Support Act (which was superceded by the Personal Responsibility and Work Opportunity Reconciliation Act, passed in 1996), states were required to fund or reimburse child care needed by those on welfare (or leaving welfare) at market rate, which was defined as the 75th percentile, for the age of child, setting, and location. Most states conducted surveys of costs, or commissioned child care referral networks or researchers to do these studies.”

[7] From WOW’s methodology: “ Child care centers are more frequently used for older children (two to four years old) than for infants (J.R. Veum and P.M. Gleason. October 1991. “Child Care Arrangements and Costs” Monthly Labor Review. p 10-17). However, particularly for younger children and lower-income parents, relative care (other than the parent) accounts for significant amounts of child care for children under three (27% compared to 17% in family day care and 22% in child care centers). It should be noted that relative care is usually, but not always, in the relative’s home, and is usually, although not always, paid; thus it more closely resembles day care homes rather than day care centers. For children three years and older, the predominant child care arrangement is the child care center, accounting for 45% of the care (compared to14% in family child care and 17% in relative child care). See J. Capizzano, G. Adams, and F. Sonenstein. March 2000. Child Care Arrangements for Children Under Five: Variation across states. Washington, DC: The Urban Institute.”

[8] Pearce, Diana and Jennifer Brooks. The Self-Sufficiency Standard for Tennessee. Published by: Wider Opportunities for Women: 2002. pp. 5-6.

[9] Determining Child Care Market Rates in the State of Tennessee, by Joan M. Snoderly. Accessed October 9, 2007. www.tennessee.gov/humanserv/adfam/DraftCCDF_PlanFY08-09_4.pdf , p. 86.

[10] U.S. Bureau of Labor Statistics, Consumer Expenditures in 2005 , Report 998, February 2007, p. 7.

[11] “Official USDA Food Plans: Cost of Food at Home at Four Levels” U.S. Department of Agriculture. Site Accessed: September 28, 2007. http://www.cnpp.usda.gov/Publications/FoodPlans/2007/CostofFoodMay07.pdf

[12] See Porter, C and Deakin, E. (1995). Socioeconomic and Journey to Work Data: A Compendium for the 35 Largest U.S. Metropolitan Areas. Berkeley, CA: Institute of Urban and Regional Development, University of California at Berkeley.

[13] http://factfinder.census.gov/servlet/NPTable?_bm=y&-geo_id=05000US47037&-qr_name=ACS_2006_EST_G00_NP01&-ds_name=ACS_2006_EST_G00_&-_lang=en&-redoLog=false (accessed Nov. 14, 2007)

[14] http://www.epinet.org/datazone/fambud/fam_bud_calc_tech_doc.pdf (accessed Nov. 14, 2007)

[15] http://www.irs.gov/newsroom/article/0,,id=163828,00.html (accessed Nov. 14, 2007)

[16] Information from Metro Government’s Open Enrollment’s Website, November 2007.

[17] We follows the Economic Policy Institute’s methodology here for calculating these figures: “ Out-of-pocket costs are derived from the Medical Expenditure Panel Survey, for which the data can be accessed at: http://meps.ahrq.gov/MEPSNet . Several restrictions were used to determine out-of-pocket costs. To get a sample of sufficient size, the age restriction for children was set between 0 and 12 years, and parents’ age is limited to between 28 and 38 years old.” However, our own research updates EPI’s figures by looking at the most recent 2003 “true data.”

[18] The most recent MEPS survey year with “true data” is 2003. We thus converted the data into September 2007 dollars (multiplying by the CPI of 1.23) by using the consumer price index for medical care, which can be found at http://www.bls.gov/data/home.htm , under the Prices & Living Conditions section. The data series are located under the CPI for All Urban Consumers.

[19] Tennessee Department of Revenue. Site Accessed: October 11, 2005. http://www.state.tn.us/revenue/

pubs/taxlist.pdf

[20] H&R Block’s online program for taxes was utilized for this calculation.

[21] Ettlinger, Michael . “ Securing the wage floor 
: Indexing would maintain the minimum wage's value and provide predictability to employers ,” EPI Briefing Paper #177. October 12, 2006.