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Poverty and Prosperity: Wage and Income Measures
by Brooke Jackson
Published Jan-2-2014

 
A multitude of wage and income measures are produced by the federal government, state governments, and private entities. Many of these measures attempt to gauge the relative prosperity or poverty of Oregon's individuals and households. Several are calculated in the same way around the nation, allowing for comparison with other states and areas. While each measure varies in purpose, scope and definition, they all help illustrate the financial situation of Oregon's individuals and families.

Oregon's Minimum Wage Rises With Inflation
 
Like many states in the U.S., Oregon has a law that guarantees a minimum hourly wage to workers. Nearly all of Oregon's employers are required to pay workers at this rate, but there are a few exceptions, including some agricultural workers and work done for a family business.

Due to a law passed in 2002, Oregon's minimum wage is adjusted every year based on inflation. Thus, when the average cost of goods increases from one year to the next Oregon's minimum wage increases at the same rate, with the new minimum wage taking effect on January 1st. The increase is calculated the prior September using August data on inflation. This advanced timeline gives the state government time to announce the new minimum wage and businesses time to plan accordingly.

At the beginning of 2014, Oregon's minimum wage rose to $9.10 per hour. This is an increase of 1.7 percent from the rate of $8.95 in 2013. This change corresponds to the increase seen from August 2012 to August 2013 in the U.S. Consumer Price Index for all urban consumers - the most commonly used measure of inflation. Oregon's minimum wage is now $1.85 higher than the federal minimum wage. In the 21 states where the state minimum wage exceeds the federal rate, workers covered by both laws receive the higher state rate.

Before taxes, a full-time, year-round worker earning $9.10 an hour makes about $18,900 per year. At the federal minimum wage ($7.25), a full-time worker earns about $15,100 before taxes. In the first quarter of 2013, about 149,700 jobs in Oregon paid $9.10 per hour or less.

Nearly Half a Million Below Poverty Thresholds
 
At the federal level, the Census Bureau and the Department of Health and Human Services work together to define a measure of minimum income called a poverty threshold. This threshold is expressed in terms of annual income. Individuals and families who earn less than the poverty threshold are considered impoverished. There are several different thresholds, depending on the size of a family and the age of any children in the household. Thus a young, single person has a different poverty threshold than a married couple with two teenage children.

The thresholds were originally determined in 1963 based on two factors: (1) food budgets designed by the U.S. Department of Agriculture for families under economic stress, and (2) the average portion of income a family spends on food. Like the minimum wage, the poverty thresholds are updated each year based on inflation.

In 2012, the poverty threshold for a single person was about $11,700. Single people whose pre-tax annual income was lower than this amount were considered impoverished. For a family of three (the average family size in Oregon), the threshold was almost $18,300.

An estimated 658,400 Oregonians fell below the poverty threshold in 2012. They accounted for 17.2 percent of the population. Fewer individuals (388,700) were impoverished in 2000 and they made up a smaller portion of the total population (11.6%). Oregon's increase in the rate of poverty from 2000 to 2012 followed the national trend. However, Oregon's rate was below the national average (12.4%) in 2000, but higher than the U.S. population below the poverty level (15.0%) in 2012.

About the poverty thresholds, the Census Bureau says, "although the thresholds in some sense reflect families needs", they are merely meant as one measurement, and not a complete description of how much people and families need in order to live. The Bureau also notes that some government programs use guidelines or measures other than those provided by the Census Bureau to determine the poverty status of a person or family.

Living or Family Wages Vary by Location
 
Yet another measure of minimum income is a living or family wage. A living wage is exactly what it sounds like: income sufficient for a person to live on. For a wage to qualify as a "living wage", it should provide enough money to at least cover basic expenses like food, housing, and utilities. Earning a "family wage" means that a person has sufficient income for his or her basic necessities and for the basic needs of children and/or a spouse.

While this kind of wage definition is appealing, the task of defining a living or family wage is difficult. There are many factors to consider, such as: What items are "basic necessities"? What is a reasonable average cost for things like housing and utilities? To make matters more complex, the costs for basic necessities, housing, and so forth, vary depending on location. Thus a living or family wage rate must also vary depending on location.

Despite these challenges, some governments and private entities have attempted to define a family wage. The state of Missouri, for example, has a family wage calculator online. In Washington, two private research organizations teamed up to create a report called Improving the Odds, which discusses family wages. Both the online tool and the report adjust for location and family size when calculating a family wage.In Oregon, there is no official definition for a family wage, although the phrase is mentioned several times in the Oregon Revised Statutes. The Oregon Economic and Community Development Department (OECDD) offers one definition for a family wage: the average pay per worker covered by the state's unemployment insurance system. This "average covered wage" is calculated down to the county level in Oregon using data from the Oregon Employment Department. By definition, it is the sum of payroll from establishments covered by unemployment insurance law divided by the total number employed at those establishments. In 2012, the average covered wage was about $44,200. This was an increase of more than $1100 from 2011.

Per Capita Personal Income Exceeded Inflation in 2012
 
The average covered pay is just one method to calculate the average income of Oregonians. It is a somewhat narrow measure, as it includes only the wages of workers who are covered by unemployment insurance - about 90 percent of Oregon's working population.

A broader measure of average income is per capita personal income (PCPI), which measures the total annual income per person. In addition to earned income, it includes transfer payments from the government (like social security), interest from investments, and stock dividends. The data is gathered for each state and county.

In 2012, Oregon's per capita personal income was about $39,200. This was an increase of about $1,400 from 2011, a rate of increase of 3.8%. This rate was greater than than inflation from 2011 to 2012 (2.1%). So after accounting for the approximate increase in the cost of goods and services, Oregonians had more income per capita in 2012 than in 2011.

Graph 1 shows the annual change since 1990 for both average covered pay and PCPI. With the exception of the early 1990s, it appears that the two measures change similarly each year. This makes sense, as earned income is a very large component of per capita personal income. Both measures tend to exceed inflation much of the time, leading to real gains in purchasing power over time, although in some years inflation exceeds wage and income gains.

Graph 1
Year-over-year change in average income Oregon 1990-2012
Oregon's Household Income Spans a Wide Range
 
Both the average covered pay and PCPI provide only a single piece of information about the income of Oregonians. Neither piece of data illustrates the wide differences in annual income from one person or family to the next. The U.S. Census Bureau, however, conducts an annual survey - the American Community Survey - that provides some insight into this topic.

Graph 2 uses this data to show the income distribution for Oregon's households in 2012. Nearly half (45%) of all households had income between $25,000 and $75,000 in 2012. The portion of households in the highest and lowest income groups were about the same, with about 7 percent of households earning less than $10,000 and a similar proportion earning $150,000 or more. The graph reflects the wide range of earnings among Oregon's households.

Graph 2
Annual household income in Oregon 2012
Conclusion
 
No one wage or income measure is relevant to all questions about the poverty or prosperity of Oregon's population. Each of these measures, from the minimum wage to average or household income, has important uses and an invested target audience. While no measure is a perfect indicator, each helps to illustrate the financial situation of Oregon's individuals and families.