The report ignores the different financial needs of households when measuring how many should be labeled ALICE, failing to account for even basic differences such as household size.
ALICE reports use a flawed method to estimate the number of ALICE households. Its statistical calculation lumps together households of all different sizes when determining how many earn less than the income threshold informed by the hypothetical household budget created in the report. This is surprising because the study presents different budgets based on the size of households, but then ignores these differences when calculating how many households fall below these budgetary thresholds.
The latest Michigan report estimates the number of households in the state that earn below a certain threshold by using county-level data. Michigan’s 83 counties each get a different ALICE threshold for households headed by someone under 65, ranging from $35,000 in Alcona and 10 other counties to $60,000 in Leelanau and Alger counties. Senior household thresholds range from $35,000 in Iosco and five other counties to $50,000 in Oakland and Leelanau counties. These county-specific thresholds are determined by adjusting the hypothetical household budgets based on the average household size in each county.
The report then uses data from the U.S. Census Bureau that provides the number of households in a variety of different bands of income: earning less than $10,000, earning between $10,000 and $15,000, earning between $15,000 and $20,000, etc. This information is available at the county level, and the report counts the number of ALICE household in each county by simply tallying up the number of households reporting income below the county-specific ALICE threshold. These results are then aggregated to produce the total statewide figure: 38% were labeled ALICE in 2019, according to the most recent report.
But this method counts any household, no matter their size or circumstance, that earns less than these thresholds as ALICE. The size of a household obviously has a significant impact on its financial needs. This factor needs to be taken into consideration when assessing how much income households may need to meet its spending needs. Ignoring it leads to overcounting how many households are financially struggling, and because of this, the results of the ALICE reports are incorrect and misleading.
Treating all households as if they have the same financial needs is even inconsistent with the ALICE report itself. It recognizes that different types of households have different needs by creating three different hypothetical household budgets. Ignoring this factor when tallying up the numbers in each county leads to seemingly contradictory conclusions. For instance, households that earn more than the reports’ own hypothetical budgets but less than the county-based threshold will be counted as ALICE, even though they do not meet the report’s own definition of an ALICE household.
Consider Macomb County, where the report establishes a budgetary threshold of $50,000 for nonsenior households and $45,000 for senior households. There are 82,086 nonsenior households that earn less than $50,000 in Macomb County, according to data from the U.S. Census Bureau. All of them are counted as ALICE households. This includes single individuals who earned more than the $23,400 the report claims is needed to avoid financial struggle. In this particular case, one-person households in Macomb County could have twice the income of the report’s hypothetical single-person budget and still be counted as ALICE.
This creates a definitional problem for the conclusion that 38% of households meet the ALICE criteria. Despite the report insisting that it measures households who cannot afford necessities, it ultimately simply counts the number of households that earn less than an amount between $35,000 to $60,000, depending on the county, and labels them all ALICE.
This is a serious misuse of the report’s own estimates and makes the findings unreliable. The report is incorrect in saying that the ALICE households it has identified earn “less than the basic cost of living for the state,” because some of those households earn more than the thresholds created in the report itself.