Serving Boone, Blowing Rock, Banner Elk, and other towns of the North Carolina High Country
Founded 05-05-05

New Report Quantifies the Economics of Making Ends Meet

Story by Kathleen McFadden

If you talk to anyone who works at a local social services agency, they’ll tell you that business is booming. But theirs is not the kind of business that signals a prosperous people. The Hospitality House is over capacity. The Hunger and Health Coalition is serving more and more families every month. This week, High Country United Way Executive Director Jenny Miller said, “We continue to get more and more calls from people desperate for money for heat, mental health needs [and more].

A lot of people are hurting, and not just because of the recession. In the High Country, the ability to make ends meet has been a longstanding problem.

Shining a light on the reasons why is a new report from the NC Budget and Tax Center called Making Ends Meet on Low Wages: The 2008 North Carolina Living Income Standard.

How Much Do We Really Need?

According to the report, a family of four—two adults and two children—in Avery County must earn $40,747 annually to afford the actual market prices of seven essential goods and services: housing, health care, childcare, food, transportation, taxes and other necessities. In Watauga County, that income figure is $43,674.

Statewide, the average income needs for a family of four is $41,184, and the NC Budget and Tax Center found that 37 percent of the studied family types fall below this income threshold, even though 60 percent of the adults in those families work full time.

And many of those families have no effective social services safety net—partly because of the federal poverty level eligibility requirements.

Federal Poverty Level

Since the 1960s, the federal poverty level has been the nation’s primary measure of economic security.

In 1965, Mollie Orshansky, an employee of the Social Security Administration, developed the poverty estimate, starting with a Department of Agriculture budget listing how much a family in an emergency or temporary situation would need to spend to keep from starving. Orshansky modified the budget for different family sizes and multiplied the number by three. Orshansky’s calculation, adjusted for inflation, became the federal poverty level.

The federal poverty level is based on spending patterns from the Eisenhower era and is widely regarded as flawed because it fails to reflect the true extent of economic hardship. Orshansky herself admitted that her measure was never intended to specify an adequate income, but rather represented a floor under which a family definitely could not live.

Can you imagine a family of four being able to meet its basic needs on a total annual income of $22,000? Inconceivable as it is, such a family would not be considered “poor” because that $22,000 exceeds the 2007 federal poverty level of $21,027.

Living Income Standard

To address the deficiencies of the federal poverty level measure, the North Carolina Budget and Tax Center developed the living income standard, a market-based approach for estimating how much income a working family with children needs to pay for basic expenses.

The living income standard constructs county-level budgets for four representative family types: a family with one adult and one child, a family with one adult and two children, a family with two adults and two children, and a family with two adults and three children.

For each family type, the NC Budget and Tax Center used public datasets to estimate how much money is required to pay market prices for seven essential expenses. The study showed that families’ single largest expense is childcare, followed by either housing or health care costs.

The Budget and Tax Center’s living income standard is extremely conservative, using the lowest estimate for each budget item. The food budget, for example, assumes that a family always buys bulk groceries, prepares every meal at home, never eats out and seldom purchases meat.

The budgets only include essentials and contain no allowance for such items as entertainment, cable television, cell phone service, extracurricular activities and gifts.

Because the point of the living income standard is to show how much money a family needs to earn on its own to meet basic needs, the measure excludes the value of food stamps and housing vouchers.

The living income standard also has no provision for any kind of debt repayments or savings, even though these payments can help families move ahead over time.

“By using conservative estimates, the LIS provides a basic budget for an extremely simple, if not austere, lifestyle,” the report states.

Comparing the Federal Poverty Level and the Living Income Standard

The 2008 version of the living income standard shows that a typical Avery County family—two adults, two children—needs to earn $40,747 to cover basic expenses, an amount equal to 193.8 percent of the federal poverty level. To earn that income, the adults in the average family would need to earn a combined $19.59 per hour for every working hour of every week of the year.

Here’s what it looks like in Watauga: an annual income of $43,674, equal to 207.7 percent of the federal poverty level. That means adults would have to earn a combined $21 per hour for every working hour of every week of the year.

Families Are Falling Short

According to the study, one-third of North Carolina’s working families earn low incomes, and the number and proportion of such families has risen since 2000.

That increase, in turn, is linked to trends in the labor market, particularly the growth of low-wage work. In 2006, some 24 percent of working North Carolinians earned less than $9.12 per hour.

Additionally, low-wage jobs are less likely to provide basic workplace benefits and advancement opportunities, thereby increasing the odds that people will be unable to move ahead, no matter how hard they work.

In the High Country, social services workers have long pointed to the prevalence of low-paying, benefit-free service jobs as one the major issues impeding families trying to become self-sustaining. The other oft-cited problem is the lack of affordable housing in the area.

What Next?

In addition to bringing families’ actual financial needs into sharper focus with county-specific, market-based economics, the NC Budget and Tax Center offers specific strategies for addressing the problems.

In the short term, the NC Budget and Tax center calls for reinvigorating work supports that bolster the incomes of low-wage families. The six major supports are childcare assistance, Medicaid/Children’s Health Choice, rental housing assistance, food stamps, Work First and the earned income tax credit.

Improving the effectiveness of work supports requires three broad sets of changes, the report argues: extending supports farther up the income ladder, especially when it comes to health insurance; providing the funding needed to eliminate the waiting list for subsidized childcare; and looking to the earned income tax credit as a template for other supports.

Over the long term, the center calls for “wise policies and investments that improve the quality of jobs and expand the supply of skilled workers” in the state. Among the recommendations are improving the quality of existing jobs and providing incentives for the creation of higher-quality jobs, as well as addressing the opportunities and challenges facing today’s adult workers.

To read the full report, click to www.ncjustice.org.