Refining measures of economic stability: the 2005 self-sufficiency standard for Indiana.

• Author: Nielsen-Farrell, Jill

Several methodologies have been developed to estimate the amount of income it takes for families to pay for their basic needs in today's economy. In large part, this has been a response to the outdated formula used to calculate the United States federal poverty level (FPL) threshold. The poverty threshold, developed in the 1960s, is based on a ratio of food costs and does not reflect the fact that health care insurance, childcare, and housing, for example, now dwarf the typical family's food costs. In addition, the threshold makes no adjustment for geographic differences in costs; it assumes that living in New York City costs the same as living in rural Indiana. As a result of these limitations, researchers across the country have created new methods that take into account actual costs on a regional or county basis. (1)

In the fall 2005 edition of the Indiana Business Review, the article "Economic Self-Sufficiency: The Minimum Cost of Family Support in Indiana's Metropolitan Areas" authored by Jon Bingham, M.A., and Dagney Faulk, Ph.D., of Indiana University Southeast presented a regionally based economic self-sufficiency measure for seven different family types. The methodology used in Bingham and Faulk's article is similar to another existing measure of income adequacy in Indiana: the Self-Sufficiency Standard (see Figure 1).

[FIGURE 1 OMITTED]

Since 1998, the Indiana Coalition on Housing and Homeless Issues (ICHHI) has collaborated with Diana Pearce, Ph.D., from the University of Washington and the national organization, Wider Opportunities for Women (WOW), to produce the Self-Sufficiency Standard for Indiana. (2) The third edition of the Self-Sufficiency Standard was released in September 2005, with previous editions published in 1999 and 2002. The University of Washington and WOW have successfully completed Self-Sufficiency Standard projects in 35 states, plus the District of Columbia metro area and New York City.

The Self-Sufficiency Standard differs from existing measures in two important ways: 1) it utilizes a more refined methodology by incorporating county-level data where available, and 2) it presents a broader scope of data through calculating income amounts for over 70 different family types in each of Indiana's 92 counties. (For the remainder of this article, the Self-Sufficiency Standard developed by Diana Pearce, Ph.D., will be referred to as the SSS.)

Methodology

Table 1 compares the methodology of the SSS with the methodology used to calculate the regional measure by Bingham and Faulk. Both measures take into account the same cost areas and the methodologies are similar, though not identical. For example, each includes the financial impact of food, housing, childcare, transportation, health insurance, taxes, and tax credits on a family's budget. Both also include a miscellaneous cost category but are very conservative with neither measure including line items for savings, retirement, vacations, etc. However, because of different assumptions--such as health insurance coverage and transportation costs--the income numbers are slightly different. More importantly, the refined methodology used in the SSS allows for the calculation of county-level income amounts as well as data for over 70 family types. In contrast, the Bingham and Faulk measure calculates income amounts for just seven family types and assumes all counties within the MSAs have identical costs of living. There are no income amounts calculated for counties falling outside the thirteen MSAs, leaving out most rural areas in the state.

Table 2 details the hourly...