We asked the experts to review each of the 12 methodologies and to categorize the methodology’s potential for use in adjusting the poverty measurement for geographic difference in COL. Additionally, we asked them to discuss the strengths and weaknesses of each methodology. Market Baskets Are the Foundation of a COL Index

Market baskets of goods and services provide the foundation for determining COL. Methodologies Exist That Potentially Could Lead to a Geographic COL Index

We identified 12 generic methodologies that, in some part, could contribute to the development of a COL index that potentially could be used to adjust the poverty measurement for geographic differences. Four methodologies identified baseline data, or developed a market basket that could be the basis for constructing a COL index by geographic area. Use of employer costs as a measure of living costs would introduce significant regional bias.” Many weaknesses, as well as several mixed responses, were noted for the remaining three methodologies—consumption data, family budgets, and consumer price index. Further, obtaining a consensus on what items should go into a COL index’s market baskets to reflect regional differences in consumption would be difficult. A recorded menu will provide information on how to obtain these lists.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the statistical data requirements for constructing a cost-of-living (COL) index that could be used, at the federal level, to adjust for geographic differences in living costs.

What GAO Found

GAO found that: (1) the current measurement to determine poverty levels does not account for geographic COL differences; (2) market baskets, a measure used to evaluate relative economic standing, would provide the foundation for any measure of living costs; (3) obtaining a consensus on what should go into a market basket for a COL index would be difficult; (4) there are 12 methodologies that could be used to contribute to an index to adjust the poverty measurement to reflect geographic differences; (5) the methodologies include budgeting for representative market baskets, measuring consumer spending norms, examining housing data, family budgets, or consumption data, developing various geographically specific price indexes, polling, calculating the relative amounts of time worked for each of the components of compensation, and estimating or modelling; and (6) experts' opinions about the methodologies' strengths and weaknesses were diverse and sometimes conflicting.