LISEP Ludwig Institute for Shared Economic Prosperity

To determine the TLC, LISEP tracks changes in prices for the essential items and services that individuals and families need to maintain a basic standard of living.

These are the key differences in the methods used to calculate the Consumer Price Index (CPI) and TLC:

Medical Care
The portion of CPI for medical care largely ignores healthcare premiums — which make up the majority of a medical budget in most households. For the bottom 60% of American Households, health insurance premiums account for more than 70% of all medical costs. The CPI instead focuses on the prices paid by the insurance companies, which is irrelevant for Americans’ budgets and spending.

Housing
CPI’s housing portion allocates less than 25% of the cost to rent, thus assuming a majority of Americans own their home. But for the bottom 60% of the U.S. population by income, only about half were homeowners in 2020. Making the issue even worse, the housing CPI relies mostly on surveys of homeowners’ estimates of the value of their own home. Alternatively, the TLC uses actual rental prices.

Technology
CPI for technology does not account for the fact that technology has gone from being a luxury to a necessity. The CPI attempts to price, for example, the cost of checking email. But it doesn’t consider that Americans are now expected to be able to do this instantaneously, whereas this was not the case 20 years ago. This paradox is reflected in the fact that from 2007 to 2018, the newest iPhone release price went up 100% while the CPI for telephone hardware went down by more than 50%. The TLC index instead considers the minimal amount of technology that families need to function in society in any given year, and then prices this bundle throughout time.

Transportation
CPI for transportation accounts for all transportation-related goods, including boats, new cars, and airline fees, which are largely irrelevant to middle- and low-income families. The TLC Index takes into account the price of only the necessities, including gas, used car prices, and regular car maintenance.

For a more in-depth explanation of True Weekly Earnings, please reference LISEP’s TLC white paper.

Why does it matter? Using the TLC in place of CPI to assess the changes in cost of living for LMI households would significantly alleviate their financial burden by better adjusting pay, pensions, and government transfers.

True

Living Cost

The True Living Cost (TLC) is a cost-of-living metric that provides a more accurate picture of the economic reality for median- and lower-income (LMI) families.

Additional Resources:

Median Earnings for a Full-Time Worker, Adjusted by TLC

Median Earnings for a Full-Time

Worker, Adjusted by TLC

In 2022 Dollars

Select any point on the chart to see the data for that year.

When considering the most critical items the median earner needs to buy, buying power has decreased since 2001 by 6.3% (Median Earnings adjusted by TLC). The CPI, however, shows an increase in buying power for the median earner of 9.4%. Policymakers looking at CPI might believe that Americans are earning more and thus are able to purchase more necessities. But LISEP’s TLC Index shows the opposite is true: Americans are struggling more than ever as rising living costs have eaten away at earnings.

Median Annual Income by Occupation, Adjusted by TLC

Median Annual Income by

Occupation, Adjusted by TLC

In 2022 Dollars

Select any point on the chart to see the TLC-adjusted median annual income for that occupation.

Occupations are defined by the 2010 Census occupational classification system and are calculated using the Outgoing Rotational Group supplement of the Current Population Survey. The NAICS occupation data is not used because the Bureau of Labor Statistics stresses that the data is not comparable over time.

TLC vs. Consumer Price Index

Increase Since 2001

Select any point on the chart to see the data for that year.

CPI drastically understates changes in living costs for low- and moderate-income families — TLC has risen 1.4 times faster than CPI since 2001.

Income Left After Meeting Minimal Adequate Needs

Income Left After Meeting

Minimal Adequate Needs

Annual, 2001–2022. LISEP assumes each adult is a median earner, and couples comprise a dual-earning, median-income household.

Select a family size to see the data for that demographic.

For each household type, LISEP shows the amount of income remaining after meeting minimal adequate needs and paying taxes from 2001-2022. This is before any savings or spending on recreation. In certain scenarios, borrowing is necessary just to meet the household’s minimal adequate needs.

TLC by Expense Category

Increase Since 2001

Select a family size to see the data for that demographic.

LISEP shows the percentage change in price over time for each category of minimal adequate needs faced by a median-income family of various household sizes. For instance, housing costs for a couple with three children have increased 163% between 2001 and 2022.

Federal Poverty Rate vs. Percentage Unable to Meet Minimal Adequate Needs

Federal Poverty Rate vs. Percentage

Unable to Meet Minimal Adequate Needs

2022

Select any point on the chart to see the data for that category.

The poverty rate, as defined by the U.S. Census Bureau, significantly underestimates a family’s ability to meet minimal adequate needs for every family type in 2022. Because many federal programs are contingent on poverty status, many people are currently being left without help.

Housing
Medical care
Transportation
Food

Childcare
Technology
Miscellaneous (e.g., clothing and personal care items)

The TLC takes into account household size (the eight household sizes range from one to two adults and zero to three children) and census region (Northeast, Midwest, South, and West). The TLC tracks change in price for this minimal bundle over time.

As a comparison to the TLC, the CPI measures rising prices. The CPI better serves as an inflation metric rather than a cost-of-living metric due to the inclusion of luxury items and because it only includes the urban population, among other issues.

Thus, the CPI distorts the reality of changing costs faced by most consumers. LISEP found that the CPI drastically understates changes in living costs for LMI families — the TLC rose nearly 1.5 times faster than the CPI since 2001: 78.8% compared to the CPI’s 54.4%.

Why Does it Matter?

Using the CPI as a cost-of-living metric has material implications for the well-being of American households.

Increases in pay, retirement, and Social Security are tied to the CPI. More than 15 federal assistance programs, such as the Child Tax Credit (CTC) and veterans’ pensions, are indexed to some iteration of the CPI in part or in full. This means that American households receive benefits that are not commensurate with the cost of living they face, and thus are worse off over time. This mismeasurement of the rising cost of basic needs poses a financial crisis for many families, making the American Dream further out of reach. Indexing government benefits and pay increases to the TLC would substantially correct for this mismeasurement and alleviate the financial burden of LMI families.

More About LISEP’s True Living Cost Index