What Is Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)?
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is a variation of the consumer price index, as compiled by the Bureau of Labor Statistics (BLS) in the United States. It measures the changes in consumer prices to which certain workers are exposed. The index is primarily used on an annual basis, to reflect changes in the costs of benefits paid to Social Security beneficiaries.
The Consumer Price Index for Urban Wage Earners and Clerical Workers is updated monthly, usually with a one-month lag.
- The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is an index of the cost of a basket of market goods for primarily blue-collar wage workers.
- The CPI-W is calculated using average costs for more than 200 goods such as food, beverages, housing, transportation, and other common household goods.
- The CPI-W is usually given as a percentage to express the average change in the cost of household goods from one year to the next.
- The CPI-W is used to calculate cost-of-living adjustments (COLAs) for government programs such as Social Security benefits.
- The CPI-W is a subset of the Consumer Price Index for All Urban Consumers, or CPI-U.
The Consumer Price Index
Understanding the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)
The Consumer Price Index is a measure of the change over time that wage earners and clerical workers pay for a "basket of goods," of common expenses. These cover more than 200 common consumer products, which are arranged into eight groups:
- Food and beverages
- Medical care
- Education and communication
- Other goods and services
The Bureau of Labor Statistics (BLS) calculates the average cost that consumers pay for these goods annually, then uses those averages to track changes from year to year. These changes are expressed as a percentage that shows the change in the day-to-day cost of living. A steep increase usually indicates a period of inflation; a steep decrease usually indicates a period of deflation.
A steep increase in the CPI usually indicates a period of inflation; a steep decrease usually indicates a period of deflation.
The CPI-W is a way of calculating the CPI that uses this same data but includes information from only certain groups. It focuses on the costs experienced by households with at least 50% of the household income coming from clerical or wage-paying jobs, where at least one of the household's earners was employed for at least 37 weeks of the year.
There are different versions of the CPI-W released. These include a national average CPI-W (the U.S. City Average), population size classes, and individual metropolitan areas and geographic regions.
The CPI-W is used as a benchmark for many benefit plans to reflect changes in the cost of benefits, such as Social Security payments. It can also be used in calculating future contract obligations.
CPI-W vs. CPI-E
The CPI, or CPI-U, is the general Consumer Price Index, while the CPI-W focuses on specific types of workers. There is a third research price index Consumer Price Index known as the Consumer Price Index for Americans 62 years of age and older. It is abbreviated as the R-CPI-E or CPI-E.
This index focuses on changes in the cost of living for Americans age 62 and older, whose expenses often differ from younger and non-retired workers. It uses the same basket of goods but weights them differently. For example, those 62 years of age and older often spend less on transportation, because they are no longer commuting, but more on medical costs.
Because Americans age 62 and older are only a portion of the households sampled by the consumer price survey, the population used to calculate the CPI-E is smaller than the population for the CPI-W. As a result, it has a higher sampling error than the other indexes. This sampling error is one of its limitations.
The CPI-W is used primarily for cost-of-living adjustments (COLAs) for the blue-collar working population. The CPI-E is intended to provide a better understanding of the cost of goods for older, primarily retired, workers, though it is not used by government agencies for cost-of-living adjustments.
History of the CPI-W
In 1974, the BLS considered abandoning the CPI-W in favor of the broader CPI-U population. However, labor union leaders, members of Congress, and members of other organizations who were CPI data users objected. They didn't oppose the new index, but they did have a problem with replacing the CPI-W. They worried that the broader index would no longer be “firmly grounded in the experience of low- and middle-income workers.” Instead, they promoted the creation of a separate index covering the additional workers.
As a result, when BLS introduced the CPI-U in 1978, it continued calculating the CPI-W. Of course, the CPI-W was not discontinued after three years after all—but the funds for conducting an independent survey of prices for both official populations were. As a result of these budget cuts and because little difference was seen between the CPI-U and CPI-W measures during this period, BLS discontinued the separate but overlapping samples of individual items and outlets maintained from 1978–1980 for the CPI-U and CPI-W.
BLS economists now track spending and prices by using the CPI-U sample of geographic areas, outlets, items, and prices. The CPI-W is then derived by adjusting the weights for various spending categories, reflecting that the spending habits of the wage-earner population differ somewhat from the broader consumer population.
How Is the CPI-W Calculated?
The CPI-W is calculated using the measurements in the change of the price of specific goods at specific retail outlets. These goods and outlets are kept as consistent as possible from year to year in order to provide a usable measurement of change. For example, the cost of a bag of golden delicious apples at a popular superstore could stand in for the overall cost of a bag of apples.
What Is the Difference Between the CPI-U and the CPI-W?
The CPI-U is the Consumer Price Index for All Urban Consumers. It is the main Consumer Price Index, often simply called the CPI. The CPI-W is a subset of the CPI-U that is used to understand changes in consumer expenses for primarily blue-collar wage workers.
Who Is Included in the CPI-U and in the CPI-W?
The CPI-U tracks retail prices that affect all urban consumers, or about 87% of the U.S. population. The CPI-W is a subset of the CPI-U and tracks retail prices that affect hourly wage earners and clerical workers. This is about 32% of the U.S. population.
How Is the CPI Used to Calculate the Cost of Living Adjustments (COLA) for Social Security Recipients?
Cost-of-living adjustments, or COLAs, for Social Security are based on increases in the CPI-W. A cost-of-living adjustment that is effective for December is equal to any increase in that year's third-quarter CPI-W compared to the third quarter of the last year in which there was a COLA. If there is no change, there is no adjustment.