NCEDA Research Committee Blog: Wage Measures 201 – Educating
Community Stakeholders on this Important Metric
Wage Measures 201 – Educating Community Stakeholders on this Important Metric
Written by Crystal Morphis
Founder / CEO, Creative Economic Development Consulting and Chair, NCEDA Research Committee
One of an economic developer’s roles is to educate local officials on economic development principles, best practices, and trends. We have had some discussions lately on how to help local officials understand the different wage metrics that can be used for incentive and grant programs. The terms average wage, manufacturing wage, poverty wage, and living wage get bandied about without a lot of definition or discussion of the differences. This article reviews those wage measures and includes talking points you can use when educating your local officials.
Wage standards are a part of economic development policies because one of the goals of economic development is to improve quality of life. Communities design and implement education, training, technology, entrepreneurship, and other programs with the goal of increasing wages. Establishing a required minimum wage for eligibility in some economic development programs helps improve quality of life by encouraging better paying jobs.
Example data were pulled from rural, suburban, and urban communities in both eastern and western North Carolina, to use as illustrations for this blog. Readers from other states can do something similar to make a discussion with elected officials more meaningful.
Average Weekly Wage is a standard often used as a minimum requirement in incentive policies and grant programs. The Average Weekly Wage is the average of all industry sectors. It is a number that is updated frequently and available at the county level from the Bureau of Labor Statistics (BLS). Retail is often one of the top three employment sectors in a community; thus, for most communities the low wages of these retail workers decrease the average weekly wage more than top earners in lower employment sectors such as Finance and Information increase the average. Incentive policies will often require that companies pay above the average weekly wage, sometimes indicating a percent above the average. An example is to require companies to pay 10% above the average weekly wage.
Another common wage standard is the Average Manufacturing Wage which is the average of all jobs in the two-digit (31) manufacturing NAICS (North American Industrial Classification System). It is also a number easy to research using BLS. The average wage of this sector is almost always higher than the average weekly wage because of the high number of lower paying jobs impacting average weekly wage. In the example wage information in the table, average manufacturing wages range from 4% to 69% higher than average weekly wage. The 4% difference is in Mecklenburg County where high wage finance jobs push up the average weekly wage. The 69% difference is in Wake County where high-tech manufacturing sectors drive higher manufacturing wages.
Living Wage is a term that more communities are tying to incentive and grant programs. Unlike the previous examples, there is not just one definition of Living Wage. Many analysts use the Massachusetts Institute of Technology Living Wage Calculator (https://livingwage.mit.edu) to find the living wage for their community. Note that living wages, as indicated in the table below, are less than the average weekly wage and average manufacturing wage. This is because the MIT definition of a living wage is really a “subsistence wage.” A subsistence wage is a wage that is just above qualifying for public assistance. Using this metric as a standard for qualifying for public investments will not advance the community’s goal of improving quality of life. This is what MIT says about the living wage in the technical notes:
“The living wage model exceeds the poverty level as measured by the poverty thresholds, but it is a modest ‘step up,’ which accounts for individual and family needs. The living wage model does not include funds for what the public considers the necessities enjoyed by many Americans. It does not incorporate funds for pre-prepared meals or those eaten in restaurants. It does not contain money for paid vacations or holidays. Lastly, it does not provide a financial means for planning for the future through savings and investment or for the purchase of capital assets (e.g., provisions for retirement or home purchases). The living wage is the minimum income standard that, if met, draws a fine line between the financial independence of the working poor and the need to seek out public assistance or suffer consistent and severe housing and food insecurity. In light of this fact, the living wage is perhaps better defined as a minimum wage covering necessary costs for persons living in the United States.”
Note: We converted average weekly and average weekly manufacturing wages to hourly for comparison to the MIT calculator.
Many communities and organizations realize that a living wage, as defined by MIT, is not a wage on which people can thrive. At this wage level, they are one car breakdown away from government assistance (if they have access to a car). Thus, many places have calculated a true living wage for their community. Some examples:
- Buncombe County/Asheville, NC, set a living wage of $17.70/hour which is above the MIT calculated living wage of $16.88
- Durham, NC has a living wage of $16.92; whereas the MIT calculator is $16.02.
- myFutureNC, a statewide nonprofit focused on education, recommends a “family sustaining wage” which is 300% of the federal poverty level, whereas the MIT calculator averages 240% across all family types.
There are various models to determine a living wage for your community. Most include a calculation where housing is no more than 30% of income. The Anker Methodology uses surveys and models to research “decent food, decent housing, non-food non-housing, and margin for unforeseen events.” https://www.living-income.com/measurement-living-income
Some incentive and grant programs are based on a percent above the federal poverty level. In 2021, the federal poverty level for a one-person household is $12,880 and for a four-person household is $26,500 (U.S. Dept. of Health and Human Services https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines/prior-hhs-poverty-guidelines-federal-register-references/2021-poverty-guidelines#threshholds). As noted above, the MIT calculator averages about 240% above the federal poverty level. myFutureNC uses a family sustaining wage of 300% above poverty level. This is $79,500 for a family of four.
No discussion about wage standards would be complete without a mention of the federal minimum wage, $7.25 an hour. Currently, 20 states use the federal minimum, and 30 states have a higher minimum wage. North and South Carolina have not passed legislation to increase the minimum wage beyond the federal minimum. Virginia’s minimum wage increased from $9.50 to $11 per hour on January 1, 2022, as part of a law designed to increase the state minimum wage from the federal minimum wage to $15 an hour by 2026.
At the risk of further muddying the water, average weekly wage and average manufacturing wage are related to employment in a locality. Whereas poverty and living wages are related to the people of a locality. Thus, an EDO could recruit high wage jobs that are filled by in-commuters leaving the income levels of the residents unchanged. We recommend tracking per capita and median household income in a group of data points we call ‘economic health indicators’. These indicators show if economic policies are positively impacting people over time. It is a good practice to see if your residents’ income is keeping up with wage growth. You can do this by comparing the percent change in median household income to the percent change in average wages over the same period.
When determining what wage standard to use for your economic development programs, first clearly define the goal of the program. If it is to improve the quality of life of citizens in your community, then ask which wage standard will achieve that goal. Be ready to explain the differences to keep community stakeholders informed about economic development programs and goals.
- Clearly define the goal of economic development incentive and grant programs to determine what wage standard will help you meet that goal.
- A poverty wage qualifies people for government assistance.
- The federal minimum wage of $7.25 is below a subsistence wage and if more than one person is in the household, it qualifies people for government assistance.
- The MIT living wage calculator calculate wages just above the federal minimum for assistance and is considered a subsistence wage.
- Requiring companies to exceed the average weekly wage by some percentage will support a goal of raising overall wages toward improving quality of life.
- Average manufacturing wages almost always exceed the average weekly wages making it a wage standard that will support a goal of raising overall wages and improving the quality of life.
- Communities can conduct research to determine the difference between a subsistence wage and a true living wage by researching the cost of food, housing, and non-food and non-housing expenses as well as a margin for unforeseen events.
- Track per capita and median household income growth and compare to average wage growth to see if residents’ income is keeping pace with wage growth.