Saturday, June 18, 2011

Cost of Living Adjustment to SS & CPI-W

Been working on tracking down whether the rumor I'd heard about the "cost of living" surveys the gummint makes do not include the prices of transportation (like gasoline) and staying alive (like food).

The story thus far: Proper terminology is Consumer Price Index(es-or indices) or CPI. And there are lots of 'em, calculated by the Bureau of Labor Statistics.

The most comprehensive (biggest "shopping basket"-ful) of them is the CPI-U--Consumer Price Index for all Urban Consumers. It appears that this includes gasoline and food prices. The Social Security Administration uses CPI-W, a subset of CPI-U. Here's what the BLS FAQ has to say about the CPI-W:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the expenditures of households included in the CPI-U definition that also meet two requirements: more than one-half of the household's income must come from clerical or wage occupations, and at least one of the household's earners must have been employed for at least 37 weeks during the previous 12 months. The CPI-W population represents about 32 percent of the total U.S. population and is a subset, or part, of the CPI-U population.
I'm not sure whether a price index that is based on one third of the population is apposite to the cost of living encountered by those receiving social security payments. What I am sure of is that I've never heard about these hair-splitting decisions from anyone in "the modalities" of communication (formerly known as media, but I'm tired of that--and I think modalities is a more precise/accurate definition).

This is akin to the official unemployment rate monthly reports, and whether the modalities should be reporting "U-3" (the official rate) or "U-6," the total rate, or what I call the real unemployment rate. The U-3 for May, 2011 is 9.1%, the U-6 is 15.1%. And no longer is this called an unemployment number. Now it's Underutilization of Labor. Gotta love it.

Which index is the "Official CPI" reported in the modalities? (The BLS web site is fairly useful. It certain reveals that there is a whole galaxy there of sliced and diced statistics, and to find out what's actually going on, you have to discover the right solar system, then the right planet some other agency has fastened on as the peg for its cost of living adjustments.

As the BLS frequently-asked page notes:

How is the CPI used?

The CPI affects nearly all Americans because of the many ways it is used. Following are major uses:

  • As an economic indicator. More.
  • As a deflator of other economic series. More.
  • As a means of adjusting dollar values. More
Perhaps NPR's Planet Money team could explain some of this stuff to us? Or check out Kevin Phillips' Bad Money. And do check the "underutilization of labor" (Luntz-speak if ever I heard it/read it) figures every first Friday morning.