Technical Reference

Full Methodology

Every formula, every source, every assumption

Subsidy Calculations Break-Even Analysis Ford Effect Model Labor Hours Conversion Data Sources Assumptions & Limitations

Key Definitions

What is a Living Wage?

A living wage is the minimum income needed for a worker to meet basic needs without relying on public assistance. It covers housing, food, healthcare, transportation, and other essentials. Unlike minimum wage (a legal floor), living wage is calculated based on actual cost of living, which varies by location.

This Site's Default

$17.50/hr (assumed)

Local Data

MIT Living Wage Calculator (county-level; no national figure)

Subsidy Calculation Engine

The subsidy engine estimates the taxpayer cost of public assistance for an employer's low-wage workforce across eight programs: SNAP, Medicaid, CHIP, EITC, housing, childcare, TANF, and LIHEAP. Household program rules are priced at the modeled income, enrollment is calibrated against GAO's state-level data, and results are reported as a range because the eligibility share is known only to within a band.

Formulas

Annual IncomeFormula 1

hourly_wage × hours_per_week × weeks_per_year

Average low wage converted to annual income (2,080 hours at full time, scaled by the employer's FTE ratio)

Household EligibilityFormula 2

household_income vs FPL threshold, per program

Household income (2.5 persons assumed: 1.5 adults, 1 child) compared to each program's FPL-based cutoff (2026 guidelines). SNAP is priced by the FY2026 statutory formula; Medicaid, CHIP, EITC, TANF, and childcare are priced per person or per household from published data

Program EnrollmentFormula 3

low_wage_employees × eligible_share × take_up_rate

eligible_share is derived per sector from GAO-26-108703 state tables and carried as a low/high range; take-up rates among eligibles are sourced per program

Total SubsidyFormula 4

Σ(enrolled × program_benefit), per_employee = total ÷ low_wage_employees

Summed across the eight modeled programs, reported with the eligibility range, and cross-checked against the largest single-employer share GAO has ever observed (4.8%)

Code Example

function calculateEmployerSubsidy(profile: EmployerProfile): SubsidyResult {
  // Household program rules at the modeled income:
  // FPL 2026, SNAP statutory formula, per-person Medicaid/CHIP pricing
  const eligibility = estimateBenefitEligibility(annualIncome, familySize);

  // Share of workers whose household actually qualifies, calibrated
  // per sector against GAO-26-108703 and carried as a low/mid/high band
  const band = bandFor(profile.name);

  // enrolled = lowWageEmployees × eligibleShare × takeUpRate
  const breakdown = calculateProgramBreakdown(
    profile.lowWageEmployees, eligibility, band.mid
  );

  return {
    totalAnnualSubsidy,  // Σ(enrolled × programBenefit)
    perEmployeeSubsidy,
    breakdown,
    range,               // recomputed at band.low and band.high
    plausibility,        // modeled share vs GAO's observed 4.8% ceiling
    methodology,         // steps, assumptions, provenance counts
  };
}

Break-Even Analysis

The break-even engine finds the wage at which raising pay costs an employer the same as the proposed tax it eliminates. Above that wage, raising pay is the cheaper option.

Formulas

Tax LiabilityFormula 1

total_subsidy × proposed_tax_rate

Employer tax under the proposed policy, from the subsidy engine's estimate for this employer

Wage Increase RequiredFormula 2

tax_liability ÷ (employees × annual_hours)

Hourly increase whose total cost equals the tax it eliminates

Break-Even WageFormula 3

current_wage + wage_increase_required

Wage at which raising pay costs the same as paying the tax; above it, raising wages is cheaper

Net SavingsFormula 4

tax_liability - annual_cost_of_increase

What the employer keeps by raising wages to break-even instead of paying the tax

Ford Effect Model

Models the demand-side effects of wage increases: consumer spending, GDP impact via a transfer-based multiplier, payroll tax revenue, and reduced assistance costs. The multiplier literature measures government transfers, not wage mandates, so the modeled demand channel is an upper bound, not a forecast.

Formulas

Direct Wage IncreaseFormula 1

(target_wage - current_wage) × affected_workers × annual_hours

Total new wages flowing to workers. A transfer from employers, not new outside money; employer offsets are not modeled

Consumer Spending IncreaseFormula 2

direct_wage_increase × marginal_propensity_to_consume

Share of new income spent rather than saved. MPC of 0.90 is an assumption (adjustable in the calculator), not a sourced estimate

GDP ImpactFormula 3

consumer_spending_increase × gdp_multiplier

Multiplier of 1.5 from USDA ERS ERR-265, measured for SNAP transfers in a downturn. Applied to wages it is an upper bound

Net Fiscal ImpactFormula 4

payroll_tax_gain + assistance_reduction

FICA at the statutory 15.3% combined rate, plus reduced assistance priced by the same audited program rules at both wages. Federal income tax is excluded: near zero or negative for this population after the EITC

Labor Hours Conversion

Converts dollar amounts to labor time equivalents for intuitive comparison of wealth and subsidies.

Formulas

Total Labor HoursFormula 1

wealth_amount ÷ hourly_wage

How many hours of work the wealth represents

Person-YearsFormula 2

total_hours ÷ hours_per_year (2,080)

Full-time work years equivalent

Working LifetimesFormula 3

person_years ÷ career_years (47)

Complete working careers represented, age 18 to 65

Living Wage ComparisonFormula 4

Key Assumptions

•Household of 2.5 persons (1.5 adults, 1 child): assumed, not sourced
•Eligibility share per employer is derived from GAO-26-108703 state tables and reported as a range
•Program take-up rates among eligibles are sourced per program (USDA, IRS, CBPP, ASPE, ACF, Urban Institute, MEPS)
•SNAP is priced by the FY2026 statutory formula (conservatively: shelter, dependent care, and medical deductions omitted); other programs use published benefit levels (KFF, IRS SOI, HUD, ACF)
•The $17.50 national living-wage threshold is an assumed project parameter; MIT publishes county figures and no national average
•Marginal propensity to consume of 0.90 is assumed (adjustable in the calculator)
•GDP multiplier of 1.5 is USDA ERS ERR-265's estimate for SNAP transfers in a downturn; applied to wages it is an upper bound
•Full time is 2,080 hours per year; a working career is 47 years (age 18 to 65)

Known Limitations

•Program overlap is not modeled: programs are summed as though enrollment in one is independent of the others
•Employer behavioral responses (hours cuts, price increases, automation) are not modeled
•Household eligibility varies: two-earner households at the same wage are often ineligible, which is why the eligibility share is the dominant uncertainty and is reported as a range
•The $152.8B Berkeley figure is 2009-2011 program data in 2013 dollars: a floor for that period, not a current-year estimate
•State minimum wages in the data are 2024-vintage, and state-specific program rules are not modeled
•Asset tests and immigration status may disqualify otherwise income-eligible workers
•The job-effects evidence is genuinely mixed: CBO's range for a $15 minimum spans roughly zero to 2.7 million jobs lost

Try the Calculations Yourself

Use our calculator to explore these formulas with real employer data.

Key Definitions

What is a Living Wage?

This Site's Default

$17.50/hr (assumed)

Local Data

MIT Living Wage Calculator (county-level; no national figure)

function calculateEmployerSubsidy(profile: EmployerProfile): SubsidyResult { // Household program rules at the modeled income: // FPL 2026, SNAP statutory formula, per-person Medicaid/CHIP pricing const eligibility = estimateBenefitEligibility(annualIncome, familySize); // Share of workers whose household actually qualifies, calibrated // per sector against GAO-26-108703 and carried as a low/mid/high band const band = bandFor(profile.name); // enrolled = lowWageEmployees × eligibleShare × takeUpRate const breakdown = calculateProgramBreakdown( profile.lowWageEmployees, eligibility, band.mid ); return { totalAnnualSubsidy, // Σ(enrolled × programBenefit) perEmployeeSubsidy, breakdown, range, // recomputed at band.low and band.high plausibility, // modeled share vs GAO's observed 4.8% ceiling methodology, // steps, assumptions, provenance counts }; }

Full Methodology

Table of Contents

Key Definitions

What is a Living Wage?

Subsidy Calculation Engine

Formulas

Code Example

Break-Even Analysis

Formulas

Ford Effect Model

Formulas

Labor Hours Conversion

Formulas

Data Sources

Bureau of Labor Statistics

U.S. Census Bureau

Government Accountability Office

USDA Food and Nutrition Service

Centers for Medicare & Medicaid Services

Internal Revenue Service

Assumptions & Limitations

Key Assumptions

Known Limitations

Try the Calculations Yourself

Full Methodology

Table of Contents

Key Definitions

What is a Living Wage?

Subsidy Calculation Engine

Formulas

Code Example

Break-Even Analysis

Formulas

Ford Effect Model

Formulas

Labor Hours Conversion

Formulas

Data Sources

Bureau of Labor Statistics

U.S. Census Bureau

Government Accountability Office

USDA Food and Nutrition Service

Centers for Medicare & Medicaid Services

Internal Revenue Service

Assumptions & Limitations

Key Assumptions

Known Limitations

Try the Calculations Yourself