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More than 20 years ago, the Economic Policy Institute created the first version of the Family Budget Calculator (FBC). Since then, we have continuously made improvements to the methodology and updated it regularly with the latest data available. This interactive tool estimates the income needed for families of different sizes and compositions to afford basic necessities in different parts of the country.

EPI’s family budget tool is frequently used to gauge the adequacy of labor earnings. It has been cited by living-wage advocates, private employers, academics, and policymakers who are looking for comprehensive measures of economic security. In fact, we are often asked how to construct a living-wage standard from our family budget income numbers.

This is a question that data—and our family budget data specifically—can inform, but it is not a question the data can definitively answer. There is not necessarily a direct line to be drawn between family budgets and the “living wage” required to meet those budgets. A whole host of factors influence a family’s ability to meet their budget. Policymakers, living-wage advocates, and others (for example, employers setting wages for their workers) must therefore weigh various considerations as they use the data to construct a meaningful local living-wage standard.

For one thing, wages (living or otherwise) are not the only potential resource available to families. For example, if our FBC is being used to assess wage adequacy for a workforce that has employer-provided health care benefits, health care costs in our FBC for that workforce would need to be adjusted. In a state that provides universal pre-K, child care costs would be reduced considerably.

On the flip side, our FBC does not include some categories that some might consider critical budget items. For example, if a “living wage” is expected to account for reasonable savings for retirement, college, or emergencies (e.g., job loss), then the living wage would need to be higher than one that is based on EPI’s family budget data.

In addition, assumptions about family size and composition, labor force participation (how many family members are working for wages), and work hours (the number of hours they are working) all factor into the question of what wage level constitutes a “living wage.”

We think of this report as a user’s guide to walking from our FBC data to a living wage. Here, we work through several reasonable examples of how one might shape a living wage from our FBC data, and we discuss considerations advocates may want to take into account along the way. This report presents suggestions for how our family budget data can be leveraged to inform decisions about wage standards in any area of the country.

The report begins with a basic overview of the principles and methodology underlying EPI’s Family Budget Calculator. We then walk through a series of considerations that would influence how the FBC data might be used to create a living-wage standard. We present concrete data reflecting a number of these considerations and what they would mean for a living wage in the five largest U.S. metro areas. Calculations for all counties and metro areas are downloadable from the Family Budget Calculator landing page (Economic Policy Institute 2024a).

The report also clarifies why EPI cannot—indeed, should not—identify a living-wage standard for specific local areas. The decision about what constitutes a local living wage—and what policies will ensure families have what they need—ultimately must be determined through local democratic processes guided by the local area’s residents.

In the end, the choice about how much weight to put on mandated wage standards—as opposed to other ways to provide resources to families to help them meet their budgets—is a political one. Going from the family budget data to an acceptable living wage requires the living-wage advocate or local policymaker to make a series of decisions about the appropriate reference group. This includes how to account for family composition and the mix of policy resources that should be leveraged to help families meet their budget. Further, policymakers and living wage advocates may consider future economic conditions when setting a wage standard. Projections of changes in prices would be a reasonable way to inflate current living wage levels (CBO 2024).

EPI’s Family Budget Calculator measures what it costs to live across the United States

EPI’s Family Budget Calculator measures the monthly resources a family needs to attain a modest yet adequate standard of living. The family budgets consist of seven individual components: housing, food, transportation, child care, health care, taxes, and “other necessities” for 10 family types (one or two adults with zero to four children).

Our family budgets are available for every county and metropolitan area in all 50 states and the District of Columbia. Compared with the federal poverty line and the Supplemental Poverty Measure, EPI’s family budgets provide a more accurate and complete measure of what is required for economic security in the U.S.

Our 10 family types are not exhaustive but cover a significant share of families in the United States. To be clear, these families are archetypes: For each family type, we have made assumptions about marital status as well as ages of children in various size households.1

We estimate budget items using several different data sets. For instance, we base housing costs on fair market rents from Housing and Urban Development using estimates from the American Community Survey (HUD 2023a, 2023b). We draw food budgets from the Department of Agriculture and geographically adjust those budgets using Feeding America’s Map the Meal Gap (USDA FNS 2023; Feeding America 2023).

In our latest FBC release, we use a combination of data from the Department of Labor’s National Database of Childcare Prices and Child Care Aware to establish child care costs (DOL 2023; CCAoA 2023). We adapt transportation cost data from the Center for Neighborhood Technology’s Housing and Transportation Affordability Index (CNT 2023). We derive health care costs from Kaiser Family Foundation marketplace data and out-of-pocket costs from the Agency for Healthcare Research and Quality (KFF 2023; AHRQ 2023). We draw “Other” expenses from the Consumer Expenditure Survey. To estimate taxes, we utilize the NBER Taxsim model (NBER 2022). For more details on the construction of the family budgets, see the full methodology (EPI 2024b).

The resulting family budgets vary significantly by county, metro area, and family composition. Cost of living differs by region as well as between metropolitan and rural areas. Budgets range from a low of $33,416 per year in Norton, Virginia for a one-adult household up to a high of $243,296 per year in San Mateo County, California for a family with two adults and four children.

To use FBC data to inform a living wage, policymakers must consider family types, labor force participation, and work hours

Let’s assume for the moment that wages alone will bear the entire burden of meeting a family’s budget. To determine the appropriate living wage for a locality using our basic family budget data, policymakers must consider questions about family composition and labor force participation. That is, they must decide what family type they deem to be the most appropriate benchmark.

Generally, a full-time, year-round worker is considered to work 40 hours a week, 52 weeks a year, or 2,080 hours per year. If we assume that this worker provides for themselves and their family through their labor market income alone, we can simply divide the required budget by 2,080 to get an hourly wage equivalent. But the required budget must include an assumption about the size and composition of the family that defines the benchmark for a living wage. This is inherently a political, not an economic, decision.

Should one person be able to support only themselves with a full-time, full-year wage? Should one person, through their labor alone, support a family with one child, two children, a spouse? If there are two adults, do both work full time in the labor market?

One common benchmark for setting living wages is that an adult should be able to support themselves and one child with full-time work. Using that benchmark, the local budget for that family type could simply be divided by 2,080 to determine an adequate local living wage.2

One advocacy group uses EPI’s FBC for a family of two adults and two children and assumes 1.76565 workers per family (LW4US 2021).3 That roughly translates into one full-time worker and one worker who works approximately three-quarters time to support themselves and two children.

Others might choose to use the budget for the same four-person family in the previous paragraph, but assume the family is supported by one full-time and one half-time worker (for a total of 60 hours per week).

Figure A demonstrates a variety of “living wages” based on different family compositions and work hours for the five largest metro areas.4 Let’s begin by defining a living wage as one that a sole worker can use to fully support a family in meeting their FBC adequacy.

The living wages for different family types with one full-time worker are displayed in the first three bars for each metro area in the figure. The living wage under that scenario in Los Angeles, for example, ranges from $26.81 for a one-person family to $62.55 when that one worker is supporting a family of four. In all the metro areas shown, the living wage differs by more than twofold between the one- and four-person families.

We can generate more options for living wages if we take into account different possible family work hour scenarios. Take the example of a two-adult, two-child family. If both adults work full time, then the living wage is cut in half. If instead we define the benchmark as one adult working full time and the second working half time, a different living wage is derived. Living wages under these two additional scenarios are displayed in the fourth and fifth bars for each metropolitan area in Figure A.

Our Family Budget Calculator does not define a benchmark for the family composition and work hours that should be used to determine a living wage. These are political and perhaps even cultural decisions. However, local advocates can use our FBC data to estimate a living wage once they have made these crucial decisions about benchmark family types.5

Family budgets can be met through a variety of resources

Some would argue that public social insurance and income support programs are the best way to provide budget adequacy for families with nonwage earners (e.g., children, retirees, unpaid caregivers, those with disabilities that preclude work). After all, one purpose of these welfare state policies is to provide incomes to those who cannot be expected to earn income through the labor market.

In some sense, demanding that families be able to live entirely off wage income alone represents a deep lack of faith in the U.S. welfare state.6 Given how stingy and patchy the U.S. system of public supports is relative to international peers, this is not entirely unwarranted.

In this section, we explore how nonwage income and other resources interact with family budgets to inform living wage policy.

Not all income comes from wages

It is undoubtedly true that the vast majority of lifetime income earned by the vast majority of Americans will come from the labor market. But wages and salaries do not constitute all the income of even working-class families.

According to the Congressional Budget Office (2022) data on household income, wage and wage-related income makes up about 81% of total income for nonelderly households in the middle-income quintile, ranked by level of market income.7

Average household income for nonelderly households in the middle quintile of the market income distribution is $83,425. Figure B shows that this income comes from three major sources: wage income, nonwage market income, and social insurance and means-tested transfers.

Wage-related income includes wages and employer contributions, such as to health care and payroll taxes, and sums to an average of $67,710, or 81% of the total income pie. Another $7,712 of average middle incomes are from other forms of nonwage income, such as business income, capital gains, and other interest and earnings. Together that sums to 9% of total income.

The remaining 10%, or $8,003, comes from social insurance and means-tested transfers, such as Social Security, unemployment insurance, the Supplemental Nutrition Assistance Program, or health insurance programs. Social insurance and income support policies are extremely useful tools to pull families with nonworkers to budget adequacy, and even the too-stingy U.S. welfare state does provide some resources to typical families.

In light of these findings, policymakers might choose to construct a living wage based on the assumption that 81% of a family’s budget will be met by labor market income. In Figure B, we analyze what such a living wage might look like in the same five cities we looked at in Figure A. We also look at living wages constructed using different resource scenarios, including the availability of child care subsidies and employer-provided health insurance. For simplicity, in Figure B and those that follow in the remainder of the report, we assume a living wage is derived from the budget for one full-time worker supporting one child.8

The first set of bars in Figure C replicates the second set of bars in Figure A (a living wage for one full-time worker supporting one child, with wages covering 100% of their budget). The remaining bars simulate a series of alternative living wages given a variety of assumptions about income sources and alternative resources available to meet their basic family budget.9

For a full-time worker supporting a child in the New York metro area, the living wage is $52.02 if wages must cover 100% of the family’s budget. If we instead assume that only 81% of the resources needed to meet the family budget come from wages (based on the CBO data presented in Figure B), that translates into an hourly wage of $42.14. That is nearly $10 an hour less than the case where labor market income must do all of the work of meeting the family’s budget.

Many (but not all) workers get health insurance through their jobs or through public programs

ACA subsidies cap premiums at 8.5% of income

EPI’s family budgets assume the purchase of the lowest-cost Bronze plan on the health insurance marketplace “exchanges” that were established by the Affordable Care Act (ACA). Exchange plans are county-specific and can be purchased during the appropriate enrollment period. We assume the lowest-cost plan satisfies our basic family budgets, but we do not include any public subsidies in our calculation. We decided not to account for public subsidies because our family budgets are meant to specify the resources needed to provide a decent life for families. They are not intended to be a measure of the resources available to these families.

If policymakers are making decisions about the resources that should be available to families (say by mandating a local area living wage), they can still leverage our FBC data to find reasonable living wages, accounting for policy in their calculations.

For example, current policy (codified most recently by the Inflation Reduction Act10) caps ACA premiums at 8.5% of income. This is, it is important to note, a very large change relative to the pre-pandemic status quo, which had no income cap for families with incomes over 400% of the federal poverty line (FPL).

Given this policy, if we cap a family’s exchange premium in that way—holding all else constant, including out-of-pocket costs for health care—this lowers the resources a family needs to get by. This would lower any calculation of living wages by recognizing that some of the resources families need to meet a decent family budget are already flowing to them in the form of ACA subsidies.

Some employers subsidize or fully pay for health insurance premiums

Additionally, of course, tens of millions of people have access to health insurance through their employers. In our FBC data, we do not mark down the budgetary needs for health care based on this. One reason why we don’t do this is that, again, the FBC data is a measure of resources needed, not resources available. A second reason is that while millions of U.S. workers and their families receive employer-provided health care, millions of others do not.

Further, this access is heavily skewed across the wage distribution. Less than one-third (28%) of lower-wage private-sector workers have access to a health insurance plan through their employer, compared with 95% of higher-wage workers (BLS 2023).

Some workers have access to a subsidized (employer-paid) health plan that covers only themselves; others have access to a family plan that covers dependents. Among those private-sector workers with access to an employee-only plan, 79% of the premium, on average, is paid by the employer; for those in family plans, 66% of the premium, on average, is paid by the employer.

In Figure C, we assume the most generous possible scenario, in which an employer pays 100% of a worker’s health insurance premium. In this scenario, we can simply zero out the premium cost while retaining out-of-pocket expenses.

In the third bar of each set in Figure C, we compare the living wage for a one-adult, one-child family with a Bronze plan in the health insurance exchanges versus fully paid employer-sponsored health insurance in the five largest metro areas. This moderately adjusts the living wage. In the Chicago metropolitan area, for example, the living wage under the original scenario is $37.97, compared with $35.32 when premiums are paid by employers. That’s a difference of over $2.60 an hour.

One hypothetical policy would cap child care costs at 7% of income

Child care access and affordability is a widespread problem in this country. Child care is expensive even as care workers themselves are undervalued and underpaid (Gould, Austin, and Whitebook 2017; Banerjee, Gould, and Sawo 2021). In many areas, child care costs exceed rents. Yet the U.S. Department of Health and Human Services and others have repeatedly stated that child care costs should not exceed 7% of a family’s income (HHS 2023).

While some states and localities have made tremendous headway in expanding universal pre-K and providing alternative options for families, large-scale federal investments have yet to be made. However, in Figure C, we roughly model what the consequences would be for remaining income resources needed to meet family budgets if policymakers did manage to cap child care expenses at 7% of family income. Under this hypothetical child care policy, a lower family budget would be required to meet a family’s needs because of these additional resources.

For each of the five largest areas, this fourth bar on Figure C recalculates the living wage for our one-adult, one-child prototype, capping child care costs at 7% of total family income (holding all else constant). For the Houston metro area, for example, the estimated hourly living wage for a one-adult, one-child family goes from $32.74 down to $30.66, a difference of $2.08 an hour, if child care costs are capped at 7% of family income. Of course, the derived living wage would change to an even greater extent for families with additional children.

Conclusion

The Family Budget Calculator is constructed to determine the resources needed to generate a decent standard of living, one in which a family can afford the basic necessities. This budget tool can inform democratic decisions about appropriate living wages, but it cannot be used to directly set these wages. Specifying a living wage requires choosing the appropriate benchmarks for family size, family composition, labor force participation, and work hours. It also requires political choices about how much weight we demand wage income alone should bear in moving families toward budget adequacy.

Healthy wages are obviously necessary for decent living standards, but other resources can also help families meet their needs. Public investments—through health care policy, child care policy, transit policy, housing policy, food policy, and tax policy, to name a few—can make a significant contribution toward helping families make ends meet. Implementing various forms of social insurance or safety nets—or providing public goods and services—lowers the wages needed for workers and their families to stay afloat.

Notes

1. For example, EPI’s family budgets assume a one-child family has a four-year-old. A two-child family has one four-year-old and one eight-year-old. Adults are assumed to be 40 years old. For more detail about the family archetypes, refer to the full methodology (EPI 2024b).

2. We used this benchmark in a previous analysis assessing wage adequacy among administrative support workers in the University of California system (Gould 2015).

3. The number of full-time-equivalent workers per couple is based on Anker and Anker (2017), who find that this number “tends to be between around 1.5 to around 1.9.”

4. The largest metro areas are based on an Office of Management and Budget definition of Core-Based Statistical Areas (OMB 2023).

5. The data spreadsheet is downloadable from EPI 2024a.

6. Much social spending in the United States is done through the tax code; because our Family Budget Calculator includes taxes at the federal and state levels, it implicitly counts some modern welfare state programs such as earned income tax credits. However, our budgets do not account for direct spending programs such as SNAP, Medicaid, or Social Security.

7. CBO publishes average incomes for four family types. We back out nonelderly households by removing elderly households from all households weighting by the shares of all households that are elderly. Nonelderly households are headed by a nonelderly householder and may include people of all ages.

8. A full complement of these examples for three family types across all counties and metro areas is provided in an accompanying spreadsheet on the FBC landing page (EPI 2024a).

9. Each scenario is independent, not cumulative, and holds all other values constant, including other necessities and taxes, which are based on other budget components.

10. Inflation Reduction Act of 2022, H.R.5376, 117th Cong. (2021–2022).

References

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Anker, Richard, and Martha Anker. 2017. “Number of Workers per Family.” In Living Wages Around the World. Northampton, Mass.: Edward Elgar.

Banerjee, Asha, Elise Gould, and Marokey Sawo. 2021. Setting Higher Wages for Child Care and Home Health Care Workers Is Long Overdue. Economic Policy Institute, November 2021.

Bureau of Labor Statistics (BLS). 2023. “Employee Benefits in the United States – March 2023” (news release). September 21, 2023.

Center for Neighborhood Technology (CNT). 2023. H+T Affordability Index. Accessed December 2023.

Child Care Aware of America (CCAoA). 2023. “Child Care Data Center” (web resource). Data for 2020, accessed December 2023.

Congressional Budget Office (CBO). 2022. Distribution of Household Income, 2019. November 2022.

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Department of Labor (DOL). 2023. National Database of Childcare Prices. Accessed December 2023.

Economic Policy Institute (EPI). 2024a. Family Budget Calculator. Last updated January 31, 2024.

Economic Policy Institute (EPI). 2024b. Family Budget Calculator: Technical Documentation. Last updated January 31, 2024.

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Gould, Elise. 2015. EPI’s Family Budgets and Wage Sufficiency. Economic Policy Institute, March 2015.

Gould, Elise, Lea J.E. Austin, and Marcy Whitebook. 2017. What Does Good Child Care Reform Look Like? Economic Policy Institute, March 2017.

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