Calculating the Cost of Living: The Bureau of Labor Statistics

Occasionally there is a need to compare prior income or costs of living with more recent ones. So how exactly do you account for changes in the cost of living ? The easy answer is you turn to the Bureau of Labor Statistics (BLS). The BLS is a government office that, among other things, is responsible for the CPI - or the Consumer Price Index. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Quite literally it represents an actual shopping list of goods and services and checks them, on a monthly basis, for changes in pricing.

So what goods and services are we talking about ? The major groups and examples of categories in each are as follows:

• FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
• HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
• APPAREL (men's shirts and sweaters, women's dresses, jewelry)
• TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
• MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
• RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
• EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
• OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. In addition, the CPI includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. However, the CPI excludes taxes (such as income and Social Security taxes) not directly associated with the purchase of consumer goods and services. The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. (These items relate to savings and not to day-to-day consumption expenses.)

For each of the more than 200 item categories, using scientific statistical procedures, the Bureau has chosen samples of several hundred specific items within selected business establishments frequented by consumers to represent the thousands of varieties available in the marketplace. For example, in a given supermarket, the Bureau may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds to represent the Apples category. For more information about the CPI and how it is used visit the BLS CPI web page.

The BLS also has an Inflation Calculator which allows you to put in a dollar amount, attached to a specific year all the way back to 1913, and then ask what that amount would be in some other year based on the impact of inflation. So for example, my father had an annual salary of roughly $9,000 in 1962. According to the BLS Inflation Calculator that would be the equivalent of an annual salary of $69,297 today.

To see inflation adjusted income measures for Herkimer and Oneida Counties from 1970 to the most recently available data, click on the table below.

Click to Enlarge

Back to the Future: Real Income Changes, 1970 to 2010

This look at our regional income levels is a precursor to a more in-depth look that will hopefully be part of the next Herkimer County and Oneida County Retrospective Report. Written after the release of Census 2000 data, these previous reports involved a review of data from as long ago as the 1950 census, although much of it was limited to only going back as far as 1960 or 1970.  These limitations were due largely to the introduction of new concepts (such as poverty) or a change in the basic definitions and collection of data on an issue, such as race. Sometimes, issues were only able to be examined in a broad context, such as white versus non-white populations. But there were many topics in which the data did allow for direct comparison over several decades with little change in how the data was collected or coded.

One of these was income. Income is generally measured in three ways within census data: household income, family income, and per capita income. Each measures three very different things. Household data measures the cumulative income of all those people within a housing unit; family income reflects the income earned a family unit’s members; and per capita income is the total cumulative income of a geographical area divided evenly by the total of all the persons living there. As a general matter, median family income tends to be higher than median household income. In comparison, per capita income is lower than either family or household income. This is understandable given that every person is included in its calculation, including those not earning income (or having very low incomes) such as children, the elderly, or the infirmed.

The tables below show each of these measures of income since 1970 for each county. In addition, each measure of income is also reported based on its adjusted inflationary value to the year 2010. This comes from use of the Consumer Price Index (CPI) from the Bureau of Labor Statistics. This allows for a more accurate view of real income changes over time. 

Click to Enlarge Herkimer County Data

Click to Enlarge Oneida County Data

So for example, the median household income in 1970 for Oneida County $8,555; by 2010, the median household income had increased to $47,257. In 2010, this represents an increase of more than five times what a household made forty years ago! But that simple view of income doesn’t give the reader the whole story. When inflation is taken into account, the amount the median household earned in 1970 ($8,555) is actually the equivalent of $50,009 in 2010 dollars. So in reality the 2010 median income level of households in Oneida County appears to less than it was in 1970, based on the rate of inflation.

Of course, the region has undergone considerable economic challenges during this time frame and not all of it has been equally spread out by decade. Taking a further glance at household income data also shows us how the period between 1970 and 1980 was one of the most difficult for people. Real household income (that is to say inflation adjusted income) in both Herkimer and Oneida Counties dropped considerably over that period – a more than 17% decline in Herkimer County and almost a 10% decline in Oneida County. It continued to drop between 1980 and 1990 in Herkimer County (-3.7%) while it saw a modest gain in Oneida County (+2.5%). In the following decade (1990 to 2000) Herkimer County saw some household income growth (+6.2%), but it all but disappeared for Oneida County residents (+0.1%). Finally, over the last 10 years, Oneida County has seen a slight increase in real income (+2.2%) while in Herkimer County it has remained practically unchanged (-0.2%). To get a better visual of these patterns, click on the chart below.

Click to Enlarge

These are the types of analysis we anticipate incorporating  into our next retrospective for the region. If you have questions about this project or have a specific topic you’d like to see covered, please drop me a line at dmiller@ocgov.net .