How did we calculate the MDW?
In a series of expert round tables, we have defined eight categories of general expenses for which we have set a minimum standard and for which a person with a minimum decent wage should be able to attain. Next, we sifted through available sources for each category to reach an amount which each household needs to earn in order to meet this standard.
The driving principle behind our calculations was that the data sources used for calculating each category must be: transparent * available to the public * current * independent
The total sum for each category below gives a net amount, which was then reconverted into a gross wage. Pension and health insurance contributions, tax reductions, and child tax credits have been included in the calculation as well.
Individual or household?
In addition to covering the expenses of one working person, the minimum decent wage should also cover at least one dependent. We included care for one child in our calculations, although this could also encompass care for an elderly or sick parent or even the simultaneous care of a child and a parent, sick partner, etc.
These costs are not consistent over the course of one’s life. There are times when they are lower (e.g., before establishing a family) and times when they are higher (e.g., caring for both a child and an older parent at the same time). Having a decent wage means being able to cover even unexpected costs from one’s wage or simply being able to prepare for such circumstances.
Groceries
This category concerns expenses from buying groceries according to nutritional recommendations. Additionally, a working adult should have the possibility to eat (lunch) at a company cafeteria or a public restaurant.
0 CZK in Prague
The food basket is based on the recommendations of the Czech Society for Nutrition, which are used in a reduced form for the calculation of social benefits and is based on the food basket recommended by the Society for Nutrition of Central European Countries for the DACH countries (Germany, Austria, Switzerland). The recommendations include coffee or alcohol, but not tobacco.
The prices of the individual foods are set as average consumer food prices according to the Czech Statistical Office supplemented by data from online shops.
Furthermore, 21 of the meals were calculated to be consumed by an adult outside the home. The cost of these portions is therefore inflated based on information on lunch menu prices.
Housing
Included here are costs for rent in an average-sized apartment, including services and utilities. The two amounts reflect the differences in prices in Prague and other cities in the Czech Republic. The same price for utilities and services is included for payers of mortgages or property owners.
0 CZK in Prague
The methodology is based on the housing norms used by the Ministry of Labour and Social Affairs to calculate housing benefits. The norms differentiate the amount of rent according to the size of the household and the municipality. The norms are distributed on the basis of the rental contract and in cooperative or owner-occupied dwellings – for their distribution we use Eurostat data, while in the case of owners with a mortgage we consider housing costs identical to rental costs. Since housing cost norms differentiate by the number of persons in the household and the size of the municipality, we use data from the Census of Population, Housing and Dwellings to estimate the average amount.
We are adjusting the previous year’s housing norms (excluding the energy surcharge) for inflation, while keeping the energy surcharge itself unchanged, so its importance will decrease as energy prices gradually normalize.
Clothing and footwear
This category concerns the cost of clothing and shoes.
Due to a lack of data, we have calculated this according to the median spending costs of working households provided by the Czech Statistical Office (Statistics of family accounts).
This calculation should be fairly accurate as statistics point to fairly consistent clothing costs even as a household’s income increases (exception is made for 20% of households with the highest incomes).
Transportation
Included here are costs associated with commuting to work or school or with running errands (shopping, seeing a doctor); it also includes costs from obtaining and using different modes of transportation (car, motorcycle, bike).
Due to a lack of data, we have calculated this according to the median spending costs of working households provided by the Czech Statistical Office (Statistics of family accounts).
The numbers do not reflect the higher costs in smaller towns where people need to commute more for work and services. Transportation costs are also higher outside of larger cities due to less integrated transportation providers and overall higher prices of prepaid tickets.
Telecommunications
This category concerns expenses associated with a phone plan, home internet, and licensing fees (e.g., TV or radio).
Included in this is a mobile phone plan with internet for an adult, a prepaid card for a child, and home internet. Costs were calculated according to the current offer of telephone operators and internet providers.
Health and hygiene
This category concerns costs associated with both hygiene products and health.
Due to an absence of other available data, costs for health and hygiene needs come from median spending costs of working households provided by the Czech Statistical Office (Statistics of family accounts).
Free time and education
This includes expenses related to continuous education, free time activities (cultural events, sports, after school groups for kids), and an in-country vacation.
The amount covers the cost of a cultural or social event 1-2 times per month (cinema, concert, trip, theatre, etc.) and 2-3 hours of sport per month for an adult.
For a child, it includes a school playgroup and/or 1 club at the DDM (10 months/year), 1 week of summer camp (every year) and a school trip (2 times over 3 years), and tutoring (1 hour/month).
Regarding leave, the median length of expert recommendations, 11 days, and domestic leave was chosen.
Furthermore, for the adult, 3 months of course training (4 hours/month) within one year is foreseen.
For all of these items, costs are estimated using average standard prices from publicly available data from service providers.
Savings
This is the average amount of a person’s income which should be set aside in the case of unexpected expenses or wage loss, as well as for retirement and other types of insurance.
For savings, 12% of a monthly wage was calculated (amounts are averaged for Prague and the rest of the country).
From the 12%, an amount of 5% needs to be saved for one-off and unexpected expenses namely associated with:
– buying and refurbishing appliances (refrigerator, washing machine, etc.), computers, and other electronics;
– equipping the household and buying personal items (furniture, dishes, tools, linens, strollers, etc.);
– one-time expenses for health needs and aids (eyeglasses, dental procedures, non-mandatory vaccinations, etc.);
– administrative expenses and legal services;
– savings in case of illness;
– and savings of 7% for retirement and other insurance. This is lower than expert recommendations (10% of monthly wages reserved for retirement), although it is closer to real spending amounts in other OECD countries.
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