Addressing price parity concerns

The Atlantic‘s Derek Thompson had a nice write-up on the Future of Work paper that EPI released April 27. In his article, Thompson included a bar chart illustrating “where poverty lives,” showing the 10 states with the highest share of workers making less than poverty-level wages, as defined in the paper. Thompson’s chart also included the share of workers in these states making between 100-200 percent of poverty wages. His bar chart clearly demonstrated that in these states, between 70-80 percent of workers earned less than twice the official poverty threshold for a family of four in 2010, or around $46,000 annually. (As a side note on poverty measures, my colleague David Cooper did a nice blog post explaining how a more dynamic method of assessing poverty—the Census Bureau’s Research Supplemental Poverty Measure—both defines millions more Americans as being impoverished and shows a far greater proportion of people living at very modest means, when compared with the official measure.)

A few commenters on Thompson’s piece brought up a good point in regards to comparing wages by geographic location (in this case by state). Some were quick to point out that the 10 states with the highest shares of workers earning at or below poverty level wages were “red states,” while others pointed out that the analysis did not take into account purchasing power parity—that is, the fact that the purchasing power of a dollar may be different in Manhattan than it is in rural Kansas. Their point was simply that a worker earning $10 per hour in Kansas may actually fare better than someone earning far more who has to pay rent and buy goods and services in a traditionally pricey market such as New York City, San Francisco, or Washington, D.C.

The table below adjusts for this by inflating the poverty wage used in the paper—$10.73 per hour in 2010—by a regional price parity index calculated by the Bureau of Economic Analysis (I actually averaged their measures for 2005 and 2006 that come from a BEA Research Spotlight titled Regional Price Parities: Comparing Price Level Differences Across Geographic Areas). The table shows the adjusted poverty wage level by state and the share of people in each state earning at or below that level. While Hawaii is somewhat of an anomaly due to its geographical separation from the lower 48 states by 2,500 miles of ocean, the next three states with the highest shares of workers earning less than the adjusted poverty wage are New York, California, and New Jersey; all states that contain very large metropolitan areas (as well as more rural areas). An even more accurate breakdown of regional purchase parity would show differences between rural and urban areas, as well as safety net services available for low-wage workers by region, but that is beyond the scope of this blog post.

Table 1 Table 1 (continued)

Adjusted share of workers earning poverty wages by state, 2010

State 0-100% poverty wages Adjusted poverty wage
Hawaii 40.6% $14.04
New York 38.4% $14.10
California 37.8% $13.75
New Jersey 31.8% $13.42
Rhode Island 31.6% $12.24
Nevada 27.7% $10.74
Connecticut 27.5% $13.20
Illinois 26.3% $10.81
Michigan 26.3% $10.04
Massachusetts 26.2% $12.99
New Hampshire 26.2% $12.21
Florida 25.2% $10.59
Oregon 25.0% $10.29
Arizona 24.5% $10.22
Texas 24.5% $9.81
Virginia 23.8% $10.96
Delaware 22.5% $11.44
Vermont 22.2% $10.80
Maryland 21.7% $11.38
Pennsylvania 21.4% $10.06
Washington 21.2% $11.08
Tennessee 20.6% $9.00
Colorado 20.6% $10.46
Alaska 19.8% $11.24
Ohio 19.5% $9.42
Indiana 19.0% $9.16
Minnesota 18.8% $10.20
Georgia 18.3% $9.48
North Carolina 18.2% $9.41
Louisiana 18.2% $8.76
Maine 18.0% $9.92
Utah 17.6% $9.37
Mississippi 17.5% $8.42
Wisconsin 17.4% $9.82
Kentucky 17.4% $8.69
Alabama 17.0% $8.50
Oklahoma 16.5% $8.67
Idaho 16.5% $8.87
New Mexico 16.4% $8.91
Nebraska 15.6% $9.39
Missouri 15.5% $8.79
South Carolina 15.3% $8.92
Kansas 14.8% $8.97
Wyoming 14.6% $9.31
Montana 14.4% $8.87
Arkansas 14.2% $8.34
Iowa 14.0% $8.95
District of Columbia 13.1% $10.61
South Dakota 12.4% $8.67
North Dakota 10.7% $8.28
West Virginia 6.9% $7.33

Source: Author's analysis of Current Population Survey Outgoing Rotation Group microdata, Bureau of Economic Analysis data
Note: Data were calculated using poverty data for a four-person household

The bottom line in this state-by-state comparison is not whether the states that show a high share of low-wage workers are red or blue; it’s rather to illustrate the often-enormous shares of people earning very low wages. As this National Low Income Housing Coalition report points out, for full-time individuals earning what they call the “renter wage,” a two-bedroom unit is unaffordable in nearly every state. The report also has some really interesting data, broken down by state, metropolitan area, and county, that shows how many full-time minimum wage jobs a household would need to hold to afford at two-bedroom fair market rent (FMR) unit. The data shows that whether or not low-wage workers are living and working in New York County (3.8 full-time minimum wage jobs to afford a FMR two-bedroom) or Wichita, Kan. (1.7 full-time minimum wage jobs to afford a FMR two-bedroom), their wages are likely not sufficiently covering their expenses.