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Cost of Living in 1980 for Low-Income Families in Washington State

Executive Summary

Washington State law requires that the development of a need standard for public assistancerecipien9 use objective budgetary guides based upon actual living cost studies.' To meet this requirement, a study was conducted by the Office of Research, Department of Social and Health Services, between July 1, 1.980 and December 31, 1980.

Objective
The primary goal of the study was to develop detailed information on a minimal but adequate cost of living for low-income persons in Washington State. Its specific objectives were:

1. To revise and document the procedures and techniques used to develop estimates of such costs;
2. To develop detailed costs of specific budget components for low­income families;
3. To identify differences in requirements based upon family size, geographic area, age, sex, and economies of scale; and
4. To establish methods for periodic adjustment of the estimates to reflect changes in the cost of living in Washington State.

Methods
our general approaches were used in the 1980 Cost of Living Study: (1) consumption categories were specified for basic requirements and some supplemental needs; (2) a market basket approach was used to determine costs of these goods and services in October 1980 prices;
two model families (a family of four and a single, elderly individ­ual) were used as archetypal consumption units and equivalence scales were used to estimate costs for families of different sizes; and
seven sample counties were selected in which to collect cost of living data. Each of these is discussed below.

Basic and Supplemental Requirements: Consumption categories were specified after thorough review of studies conducted in Washington (1974), in Oregon (1977-78), in New Jersey (1980), and in Maryland (1979). These data were compared to information in the Bureau of Labor Statistics (U.S. Department of Labor) Lower Level Living Standard.

In this study, a list of basic requirements was developed that comprised these components: food, shelter (housing), shelter (fuel), transporta­tion, household maintenance (utilities, supplies, operations, housewares/ linens), clothing, personal care, and medicinal supplies.
1RCW 74.08.040 and WAC 388-29-010.
The basic categories did not include expenditures for restaurant meals; home ownership; exterior or interior home repair or decoration; furniture or appliance purchase or repair; television or other home entertainment equipment purchase or repair; vacation or local recreational travel; admissions to movies, plays, school or other sporting events; medical services; magazine subscriptions; charitable or religious contributions; purchase of toys, games, and gifts; alcohol or tobacco; and basic school fees and supplies. Four of these expenditure categories -­school fees and supplies, small appliances, home furnishings, and toys, games, and gifts -- were identified as supplemental components.

The costs of medical care were not included in the estimate. Although medical care is obviously a part of basic requirements, developing a pricing methodology for such care was not feasible. Data on utilization of medical services and related costs for low-income families are not available by family size and type. Consequently, any dollar amount that could have been produced for our model family types would have been subject to substantial error. Medical care needs for the model family units were assumed to be met through Medicaid and related programs administered through DSHS, through county-level public health programs
and services, or through private resources, both community and individual.

Market Basket Method: Washington is one of approximately 20 states that rely primarily on the market basket approach in determining a minimal but adequate cost of living. This approach in principle is relatively uncomplicated. Consumption estimates of basic require­ments, in terms of the quality and quantities of specific goods and services, were developed after a systematic review of other cost of living studies and after consultants advised on appropriate consumption norms for the items in each category. These lists of items were then priced in retail outlets or from service providers from which the low-income population would be expected to purchase.

Costs of the goods and services that comprise the consumption categories reflect market prices. While some families may themselves produce some or all of these goods and services, these families constitute exceptions. Collecting market price data is part of the methodology of the market basket approach. Decisions were made on what the low-income population ought to be able to consume, regardless of the actual consumption choices they might make. This normative approach reflects the conven­tional market basket methodology. These decisions, however, were based on both research findings and the advice of consultants. Individual opinions and judgments of project staff were minimized.

Units of Analysis: As the result of a decision to limit the range of the pricing study, two model low-income families were chosen for three reasons. First, this approach allowed the research team to devote a larger block of time to developing and pricing each market basket.

Second, the Bureau of Labor Statistics has devoted considerable atten­tion to households of four persons, and other data producers have followed their lead. The data for a four-person household was extensive. Third, measures which indicate equivalent levels of income for families of different size are available, and the accuracy of these equivalence scales has been carefully examined.
The two model family units consisted of (a) a female-headed family of four (a mother aged 35, and three children; ages 13, 9, and 3), and (b) a single. elderly woman, aged over 65, and living alone. This allowed us to represent accurately the costs of households of low-income families with children and of households comprised of low-income elderly persons. The alternative would have been to construct a large number of model families, reflective of age, sex, employment status, location of residence, type of residence and household size variations.

Sample Counties: Four criteria were used to select seven representative counties for pricing the two market baskets. Western and eastern divisions of the state were reflected in the choice of King, Pierce, Thurston, and Whatcom counties in Western Washington and Spokane, Franklin, and Yakima counties in Eastern Washington. Urban-rural divisions were also reflected in the choices. These counties included approximately 64 percent of welfare client caseloads in October 1980. Finally, all six DSHS regions were represented in the sample. Calcula­tions on a statewide basis give costs in the more populous counties more weight than costs in the less populous ones.


Findings
What is a minimal but adequate cost of living in Washington State, in October 1980 prices? For a family of four and an elderly individual, the cost of living for basic requirements is, respectively, $707.53 and $372.85. If supplementary components were also included, costs would increase to $728.93 and $379.30.

If these model families were receiving public assistance at the levels in effect on November 1, 1980, their benefits, excluding medical assis­tance, would total $628.55 and $355.64, respectively.

What are the costs associated with maintaining families of different sizes? Using the appropriate equivalence scales, costs for families of different types and sizes may be determined. For example, the typical AFDC-R family in Washington State has three members -- a mother and two children. Using the equivalence scale, we find that costs associated with maintaining a family of this size at a minimal but adequate level are $566.02 per month. If a family of three (a mother and two minor children) were receiving public assistance at the November 1, 1980 levels, the statewide, weighted average benefits would be $531.55. These estimated benefits consist of basic grant, food stamps, and energy assistance. Medical benefits were not calculated; neither were medical costs. Family units of other sizes have costs in proportion to the number and kinds of persons in each.

Future Use of the Study
In a time of escalating prices and changing consumption patterns, the accuracy of a cost of living study diminishes with time. The final report examines possible methods of updating the information and recom­mends procedures to follow every year, every five years, every ten years, and as needed. The estimates of costs of basic necessities can be updated on a regular basis at relatively low cost.

Modified: Friday May 19 2006

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