How Differences in the Cost of Living Affect Low-Income Families

November 7, 2013

In the United States, eligibility for government social benefits is based mainly on an absolute measure of poverty -- the federal poverty level -- which is an income threshold that varies by family size. The level is supposed to be the minimum income required for a household to buy such things as food, clothing and shelter. In 2013, the poverty threshold varied from $11,490 for a one-person household to $23,550 for a family of four, say Lewis Warne and Marcelo Ostria, research associates with the National Center for Policy Analysis.

Because the cost of living varies widely across the United States, the federal poverty threshold is not a meaningful definition of minimum living standards. How much a family can buy with those benefits depends on where they live.

  • Living in New York City costs more than 2.25 times the national average; hence, an income of $23,550 would only buy $10,439 worth of goods in New York City.
  • If a family moved from New York City to Fort Worth, Texas, the same $23,550 would buy $25,765 worth of goods.
  • Thus, by moving from New York to Fort Worth, a family could increase their adjusted income, or purchasing power, by $15,326.

A number of government programs provide support to low-income families. However, some of these benefit programs only partially account for geographic variation in the cost of living, and others are not adjusted at all.

  • In Oklahoma, average housing costs in Tulsa are only 66 percent of the national average; in Oklahoma City, 78 percent.
  • In Milwaukee, housing is 105 percent of the national average; in Baltimore, it is 155 percent; and in San Francisco, 295 percent.

Prices and, hence, the cost of living, differ by location and, thus, have a significant impact on living standards. The federal government attempts to aid poor families throughout the country, but the eligibility criteria for various programs differ and usually do not account for differences in the cost of living.

Source: Lewis Warne and Marcelo Ostria, "How Differences in the Cost of Living Affect Low-Income Families," National Center for Policy Analysis, November 2013.

 

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