Category: Economy

The Working Poor in California

Today saw the release of the jobs report for March. California’s March unemployment rate was 8.1 percent, unchanged from February. Employers in California added 325,100 jobs over the past year–the largest increase in the nation. This is encouraging news for state residents who live near the bottom of the income ladder because, for a variety of reasons, workers in this category tend to be most affected by economic downturns.

Federal and state safety net programs target low-income families, and our work has shown that these programs play a major role in mitigating poverty. But a closer look shows that earnings from employment—not support from the social safety net—are the predominant source of income for working-age Californians living in poverty. Among poor adults with children, after-tax earnings made up 74 percent of family resources in 2011 (when the California unemployment rate was much higher than it is today, averaging 11.8 percent). In dollar terms, this translates into annual family earnings of about $22,200. For poor working-age adults with no children, earnings made up 69 percent of resources on average, or $10,400 (the much lower amount in part reflects the typically smaller family size of this group of adults).

Regionally, across California’s three most populous counties—Los Angeles, Orange, and San Diego—earnings made up between 75 and 82 percent of resources for poor adults with children. For those without children, earnings were 70 to 74 percent of resources. In California’s Central Valley, an economically struggling region of the state, earnings still made up the majority of family resources for poor working age adults: 59 percent for adults with children and 62 percent for adults with no children.

Although similarly detailed statistics for 2014 are not yet available, we can expect that earnings play at least as large a role in the resources of California’s poor today, now that the economy is on the upswing.

Video Highlights New Survey’s Key Findings

The March PPIC Statewide Survey examines several major issues in California, including water, high-speed rail, marijuana legalization, and taxes. The survey also finds that three months before the primary, Governor Jerry Brown remains a strong favorite for re-election this year.

The wide-ranging survey also looks at Californians’ views on national issues—such as immigration and health care reform, and abortion —and provides approval ratings on federal elected officials.

PPIC research associate Jui Shrestha presented the results of the survey at a luncheon briefing in Sacramento.

Good News on the California Economy

Information released today shows that the state’s economy in 2013 was stronger than we thought. According to revised data, California’s economy created 447,400 jobs during 2013, on an annual average basis. This is about 200,000 more jobs than the government initially reported. (Previous estimates understated this number because some jobs were erroneously excluded and because of errors inherent in sampling methodology.)

How are these numbers generated? On a monthly basis, a survey of employers helps to estimate payroll employment for California’s “nonfarm” workers (which excludes proprietors, the self-employed, unpaid family workers, farm workers, domestic workers in private households, and uniformed members of the armed services). In March of each year, these initial estimates are reconciled to actual counts of employment derived from unemployment insurance tax records, and revised estimates are released.

The effect of these revisions on the underlying employment trend is significant, with California adding jobs at an average annual rate of 3.0 percent during 2013. This is nearly double the rate that the government had previously reported (1.7%), and is significantly higher than the national rate. In fact, starting in the last quarter of 2012, California’s employment has grown at an annual rate that is 1.4 percentage points higher, on average, than the national rate. We have not seen a California-U.S. job growth gap of this order since 2009—and this time around, California is outpacing the nation. Relative to other states, the state’s job growth ranked third in 2013, surpassed only by North Dakota and Utah.

Job growth has been revised upward in most industry sectors. Traditionally, the revision process most impacts those industries experiencing unexpected growth. In 2013, those industries included health care, management, and construction. Jobs in health care and management grew 4.9 and 3.2 percentage points faster, respectively, than originally estimated. Previous estimates had not pegged either of these industries with the fastest job growth. Construction jobs grew at an average annual rate of 8 percent during 2013 (2.7 percentage points up from the initial estimate), which points toward a housing recovery that’s even stronger than expected.

In contrast, jobs in the arts, entertainment, and recreation sector grew at a slower pace than previously reported (3.7% instead of 5.5%). But even so, annual average job growth in this sector remained among the highest. The revised data also revealed that government hiring finally picked up in the last five months of the year—adding on average 25,800 jobs more than previously reported, a reversal of the trend reported in the initial estimates.

Upward revisions pushed job growth higher throughout the state. For example, in 2013 the Los Angeles-Long Beach-Santa Ana metro area is now reported to have created 50,900 more jobs than previously thought, for a total of almost 143,000 jobs created. Likewise, the San Francisco-Oakland-Fremont and the Riverside-San Bernardino-Ontario metro areas created 42,400 and 33,600 more jobs, respectively, than originally reported. This means that employment in these two metro areas grew at an annual rate of 4 percent.

Before the revisions, the state government projected that California would continue to add jobs this year at an annual rate of about 2 percent (around 340,000 jobs). In light of 2013’s stronger-than-expected job growth, we are anticipating an upward revision on job growth projections for 2014, too.

Chart source: California Employment Development – Labor Market Information Division and Bureau of Labor Statistics.

Testimony: Poverty and the Safety Net

The Assembly Budget Subcommittee for Health and Human Services is considering the level of financial support to CalWORKs, California’s cash assistance program for families with children. The panel held a hearing on Wednesday that began with testimony from PPIC research fellow Sarah Bohn about recent poverty trends and the impact of anti-poverty programs. Here are her prepared remarks.

 

My name is Sarah Bohn. I am an economist and research fellow at the Public Policy Institute of California. I hope most of you are familiar with PPIC, but for those who are not, we are a nonpartisan, independent research institute focused on major policy issues in the state. I will present the most recent facts on poverty in California and discuss their implications.

In the midst of the slow recovery from the Great Recession, attention has turned to the causes, consequences, and possible solutions to growing poverty in California and the nation as a whole. These have been topics of importance to researchers for a long time. In fact, today’s economic realities are largely the result of long-term trends. But the recession and the 50th anniversary of the War on Poverty have brought these issues into focus for the wider community and offers an opportunity for reassessment. For example, last December, the PPIC Statewide Survey found that a record-high share of Californians—66 percent—believe the state is divided into “the haves and the have nots.” Well below a majority identify themselves as part of the “haves”—a much higher share did so a decade ago.

The latest official poverty estimates suggest that about 16 percent of Californians are poor, and that as many as 22.5 percent of children in the state are poor. These numbers are an improvement over the year before, and are the first sign of a turnaround since the beginning of the Great Recession. But poverty rates today are 50 percent higher than they were five decades ago, when the War on Poverty began. Do today’s high rates of poverty mean that public investments aimed at mitigating poverty have not had their intended effect?

Unfortunately, official poverty statistics don’t give us the information we need to answer this question. The official poverty measure is based on a very simple formula developed in the 1960s. This formula has a number of shortcomings. First, it does not account for many of safety net programs—so it entirely misses the poverty-reducing effect of SNAP (food stamps) and the EITC (Earned Income Tax Credit), for example. Second, the formula has not kept up with sweeping changes in the cost of living since the 1960s. It does not reflect the increase or variation in housing costs across different places. And it doesn’t account for the fact that many families face different sorts of expenses than they did in the 1960s—like higher medical out of pocket expenses and child care costs.

These shortcomings prompted a national effort to develop alternative measures of poverty, which began to coalesce in the 1990s. In 2011, this effort produced the Census Bureau’s Supplemental Poverty Measure, which provides detailed new estimates of poverty for the U.S. In 2013, a collaborative effort between PPIC and Stanford Center on Poverty and Inequality produced the California Poverty Measure, which provides similar detail for California. Both measures use the same underlying methodology to address the shortcomings I just described in the official poverty statistics. And I’d like to note that the creators of both measures are engaged in ongoing efforts to refine and improve the methodology, and for that reason—among others—their measures do not replace the official statistics but supplement them (hence the name of the Census measure).

Both the California Poverty Measure and Census’s Supplemental Measure account for the resources that families actually have to meet very basic needs and the actual costs of doing so. The California Poverty Measure finds that more Californians are poor than we thought, as of 2011. The California Poverty Measure estimate of 22 percent (or 8 million people) is higher than the official rate of 16.2 percent—this translates to an additional 2 million people in poverty. More people of all ages are poor under this new, better measure. Of particular interest is the child poverty rate, which is 25 percent, or 2 points higher in our measure. In other words, a quarter—or more than 2 million—of our children are poor.

These higher poverty rates stem from a combination of factors. Most important, the California Poverty Measure uses higher thresholds than the official poverty measure does—that is, a higher poverty line. This is because housing costs for the vast majority of Californians are significantly higher than what the federal poverty line accounts for. On average, a single parent with two kids needs $24,600 to be considered out of poverty and a four-person family needs $29,000 to be considered out of poverty under the California Poverty Measure. That’s about $6,000 above the federal poverty line, and about $4,000 more than a similar family would need to be above poverty level in other states under the Census Supplemental Measure. These higher costs of living explain in large part why California’s Supplemental Poverty Rate is higher than that of any other state in the country.

Cost of living differences also change the narrative about how poverty varies within California. As you can see from the map I’ve provided, in many ways our measure flips the official measure’s picture of poverty. The California Poverty Measure finds that coastal areas—where housing costs are generally higher—have among the highest poverty rates in the state, much higher than the official estimates. Our measure places inland areas like the Central Valley, where official poverty rates are typically the highest, in the middle to low range statewide. In some counties with relatively low costs of living, the California Poverty Measure estimates are lower than official poverty rates. In these areas, safety net benefits to low-income families more than offset the cost of living, driving down poverty rates. But the vast majority of Californians live in higher-cost counties, where safety net resources, despite playing an important role in family budgets, are not large enough to offset high costs of living.

The California Poverty Measure allows us to look closely at the role safety net programs play in mitigating poverty. And our research suggests that this role is powerful—especially for children. We find that without CalWORKs benefits the child poverty rate jumps 2.5 points—equivalent to about a quarter million more children in poverty. Similarly, without CalFresh benefits, the child poverty rate would jump 4 points—that is an additional 375,000 children. Of course, many families use both of these programs, as well as others that we’ve accounted for—including housing subsidies, SSI, school meals, and the EITC/CTC. When we look at the combined effect of all of these need-based safety net programs, we find that without them a stunningly high 39 percent—or 3.6 million—of California’s children would be poor. That is, the child poverty rate would jump nearly 14 points. This shows that low-income and poor families are making use of the social safety net and that it has a substantial effect on their poverty status.

These poverty-reducing effects could be even larger if changes were made to the safety net. For example, the USDA estimates that slightly more than half of eligible Californians participate in CalFresh—this is one of the lowest statewide participation rates in the nation. Participation also varies across California’s counties. This begs the question of how much lower poverty rates would be—would they still be the highest in the country?—if participation rates were higher. As this example shows, housing costs are not the only area in which California stands out. And, while policy clearly plays an important role in offsetting the higher cost of living in California (it more than offsets cost of living in families with children), it has the potential to move the needle on poverty even further.

As it stands, our estimates suggest that the safety net kept nearly 1.3 million children out of poverty in 2011. This matters a lot because research increasingly links poverty to adverse outcomes in many arenas—nutrition, health, education, even brain development—in addition to long-term economic opportunity and mobility. It’s my hope that our research can be used to inform the important decisions you make on policies that address family economic need and its consequences. Thank you for your time.

 

Chart source: The California Poverty Measure: A New Look at the Social Safety Net.

The Flip Side of High Housing Prices

California is notorious for having some of the highest housing prices in the country. Californians pay a greater share of their incomes on housing costs than residents of any other state, meaning that many Californians are “house poor.” But it is less well known that a sizable share of Californians own their own homes free and clear, with no mortgage. When home prices go up, these Californians experience gains in wealth. Because of the high price of housing, these Californians are “house rich.”

According to American Community Survey data, 1.8 million California households owned their homes free and clear in 2012. These households make up 26 percent of owner-occupied housing units and 14 percent of all occupied housing units in the state (compared to 35% and 20% respectively in the rest of the country). Californians who own their homes outright tend to be older—80 percent are over age 55. Those with the most equity live in coastal counties. Some of them are house rich yet cash poor, with 6 percent having incomes below $10,000 per year. But a sizable share—22 percent—are both house rich and cash rich, with household incomes exceeding $100,000 per year. Many have lived in their houses for decades. Because Proposition 13 limits property tax increases for homeowners who don’t move, house rich Californians pay less in property taxes (on average $2,590 per household in 2012) than owners with a mortgage ($4,061 per household), even though their homes are worth about the same amount.

How house rich are they? Total equity for this group of Californians amounted to almost $800 billion in 2012. Average equity was $444,600, far higher than the average of $199,900 in the rest of the country for those who own their homes free and clear. And more than 100,000 house-rich households in California had equity in excess of $1 million, making them millionaires on the basis of housing wealth alone. Clearly, the flip side of California’s high cost of housing is the tremendous wealth generated by housing for those who pay off their homes. Of course, converting that wealth to cash is not always easy or wise, but it is a resource that, used judiciously, can improve the lives of many Californians.

Drought Watch: A Conversation with Business Leaders

This is part of a continuing series on the impact of the drought.

I recently had the opportunity to talk about the economic impact of California’s ongoing drought with two of California’s leading business representatives: Allan Zaremberg, president of the California Chamber of Commerce, and Dave Puglia, senior vice-president of Western Growers—a group that represents the state’s producers of fresh fruits and vegetables, who supply much of the nation and many overseas markets with high-quality, high-value produce. The conversation was wide-ranging, touching on the extent of the drought, its likely economic impact, and the steps that can be taken to help California avoid economic harm from future droughts.

The conversation highlighted several key points:

  • Two types of water uses are being especially hard-hit by this drought: farming—especially in the San Joaquin Valley—and environmental flows that protect fish and other wildlife. Most urban areas are in much better shape, thanks to major investments made over the past two decades to conserve, diversify water sources, and improve local storage systems.
  • The economic impacts of this drought are likely to be concentrated in farming and related sectors, such as industrial processing of farm products and fertilizer and seed sales. The drought will cause severe hardship in some regions, but it will not likely have major repercussions on the state’s economy as a whole, because farming and related activities make up just a small share—1 to 2 percent—of total state gross domestic product.
  • We need to make systematic investments to reduce our vulnerability to future droughts. Urban areas such as Southern California spent significant sums—mostly funded by local ratepayers—to diversify their water supplies. Farming areas have invested considerably in more efficient irrigation techniques, but they have also been drawing down their groundwater reserves. As a result, groundwater—normally an especially valuable resource during dry years—is in short supply in many areas, less able to help farmers weather the drought.

Testimony: Californians and Poverty

A bipartisan legislative caucus, Ending Poverty and Inequality in California, held its inaugural meeting this afternoon. The caucus includes 23 members from both the state assembly and senate, and aims to examine issues related poverty in California, develop policy ideas, and raise awareness. This first meeting provided an overview of poverty and inequality in the state and examined what these issues mean for California’s future. Mark Baldassare, PPIC president and CEO, was invited to speak and prepared these remarks to reflect the contributions of PPIC research fellows Sarah Bohn and Caroline Danielson and the PPIC Statewide Survey team.

Hello, my name is Mark Baldassare and I am the president and CEO of the Public Policy Institute of California. Thank you for the opportunity to speak as you launch this timely, historic, and “EPIC” effort to address poverty in California. For many years, PPIC has provided facts and reports with a range of significant findings on this important topic. For example, our work has shown that California’s poverty rate is higher than the U.S. average, and that one in four California children live in poverty. Recent PPIC studies have raised awareness about the growing income gap between the poor and the wealthy in the wake of the Great Recession. This work found that when we take into account the impact of government programs and the state’s high cost of living, 8.1 million Californians—accounting for 22 percent of our state’s residents—are living in poverty. I would encourage you to go to the PPIC website for our many publications in this area, and ask our staff experts to talk with you about their findings. I will also leave you with copies of the PPIC briefing kit on “California’s Future,” which includes some of our research and information on this topic and demonstrates how important it is to consider long-term challenges facing the state.

To date, PPIC’s research has documented the scale and scope of poverty and inequality in the state, and assessed the impact of programs intended to help those in need. In addition, the PPIC Statewide Survey provides a clear sense of what Californians themselves think about these issues. As the director of the survey, I’d like to focus my brief comments today on the public’s views—on the current economic landscape, the gap between the wealthy and the poor, and the role of government in addressing poverty. Since one goal of this caucus is to raise awareness about poverty and income inequality, results from our polling will help to show what the awareness level about these issues is right now. I’m going to concentrate on findings from our December and January surveys of all adults, and break out the results for those in our surveys with the lowest incomes—under $20,000 in annual household income—and other key groups.

First, let’s look at the broader context for this discussion: How are Californians viewing the state of the state? Our surveys show they are feeling more optimistic about the direction of the state, and more positive about the job performance of the governor and legislature than they were a few years ago. Still, only four in 10 say they personally are in excellent or good financial shape, only two in 10 say they are better off financially than a year ago, and just one in 10 expect their financial situation to improve a lot in the next year. Many also worry that the state could fall into bad economic times in the next 12 months. In other words, personal financial vulnerabilities and economic uncertainties are still widespread. As a result, Californians continue to name jobs and the economy as the most important issue facing people in California today, and many residents say they want the governor and legislature to work on this issue in 2014.

The widening gap between the wealthy and the poor has been a recent theme in federal and state policy discussions. And as the state’s economy is slowly recovering from the Great Recession, public opinion remains firmly in the camp that California is divided into two economic groups—the “haves” and “have nots.” A record-high 66 percent of Californians say that the state is divided into these two groups. A similar proportion, 63 percent, held this view two years ago, but when we first asked this question in January 1999, 56 percent did so. Today, of those with incomes under $20,000 a year, 67 percent view the state as divided into haves and have-nots. Majorities across income levels, political parties, education levels, racial/ethnic groups, age groups, and regions say that the state is divided into these two economic groups.

When asked to place themselves into one of these groups, 45 percent of Californians say they are among the have nots. Two years ago, a similar 48 percent said they were among the have nots, while 35 percent held this view when we first asked this question in January 1999. Today, among those with incomes under $20,000 a year, 69 percent say they are among the have nots. Sixty-seven percent of Latinos and 54 percent of blacks say that they are among the have nots, but just 31 percent of whites and 38 percent of Asians say this.

How do Californians view government’s role in these issues? Importantly, our state’s residents are steadfast in the belief that there is a role for government in providing a social safety net. Sixty-three percent of Californians agree that the government is responsible for taking care of people who can’t take care of themselves. Over the course of five surveys taken between September 1998 and December 2013, more than six in 10 Californians have consistently agreed on this point. Today, 70 percent of those earning less than $20,000 a year believe that it’s the government’s role to take care of those in need. Three in four Democrats view this as the government’s responsibility, and about half of independents agree. Fifty-five percent of Republicans disagree. At 81 percent, blacks are much more likely than other racial and ethnic groups to hold this view. Still, 67 percent of Latinos, 64 percent of Asians, and 59 percent of whites share this belief. And majorities across regions and most demographic groups see a role for government in taking care of people who need help.

When asked about the role of government benefits in the lives of poor people, 51 percent of Californians agree with the view that poor people have hard lives because these benefits don’t go far enough. In the six surveys that included this question, more than half of Californians have held this view. Today, 61 percent of those earning less than $20,000 a year think poor people have hard lives because government benefits don’t go far enough. Sixty-five percent of Democrats agree, compared with 42 percent of independents and 24 percent of Republicans. Seventy-one percent of blacks say that poor people have hard lives, as do 61 percent of Latinos, 53 percent of Asians, and 42 percent of whites.

Given these views, do Californians think government can do more? Today, forty-nine percent say that government should do more to make sure that all Californians have an equal opportunity to get ahead. In December 2011, 54 percent said the government should do more, while 45 percent held this view in January 1999. But Californians are sharply divided over this issue by income level and party affiliation. The belief that government should do more is held by 65 percent of those with incomes under $20,000 a year and 58 percent of Democrats, while four in 10 of higher-income adults and Republicans share this view.

As these findings demonstrate, PPIC’s public opinion polling provides considerable motivation for the work of the “EPIC” Caucus. There are many Californians who are personally financially challenged today, and most residents believe that California is divided into two economic groups—the haves and have nots. Many Californians believe that there is a role for government in taking care of those who need help, that government benefits don’t go far enough in helping the poor, and that the government should do more to make sure that all Californians have an equal opportunity to get ahead. While Californians are divided along party lines when asked about government programs, we found overwhelming support when we asked about raising the federal minimum wage in our March 2013 survey. Since the state recently passed a minimum wage increase, another state policy option that would be worth discussing is the earned income tax credit, or EITC. Although our polling has yet to explore the public’s views on this idea, other PPIC research has noted that the EITC has potential for increasing jobs and stimulating the economy.

In closing, I want to remind you that the poverty rate in our state is high—again, according to PPIC’s calculations, it is 22 percent—and it is higher than the national average. What these numbers tell us, what our survey results tell us, is that many Californians are struggling. If we don’t do something about poverty and income inequality in California today, we won’t have the California we want tomorrow. I hope that you will turn to PPIC as a resource as you grapple with defining the poverty problem in our state and work toward finding solutions to this critical public policy issue for California’s future. Thank you for your time today.

Refundable Tax Credits Ease Poverty in California

Poverty and income inequality have become hot topics in policy circles at the state and national levels. PPIC has been looking at these issues, too—recently analyzing the role that needs-based programs play in helping families make ends meet. In conjunction with researchers at the Stanford Center on Poverty and Inequality we measured poverty in California more comprehensively than the Census official poverty measure does. We found that the federal Earned Income Tax Credit (EITC) and refundable portion of the Child Tax Credit have the biggest impact in moderating poverty rates, relative to other safety net programs.

Both programs are aimed low- and moderate-income families with dependent children. Families must file tax returns to participate in these programs, which are funded by the federal government. (In addition, 25 states and the District of Columbia have their own smaller EITCs, although California does not.) The EITC is fully refundable, meaning that a family with earnings but no net tax obligation (after deductions) receives the full amount of the credit (based on their earnings) in the form of a tax refund. The Child Tax Credit is partially refundable.

Together, the EITC and CTC trimmed the 2011 poverty rate for working age adults from 24.0 percent to 21.4 percent. The child poverty rate dropped even more, from 31.1 percent to 25.1 percent. Put another way, an additional 600,000 California adults and 560,000 children would be considered poor without these programs.

Chart Source: The California Poverty Measure: A New Look at the Social Safety Net.

Drought Watch: Lessons from the Past

This is part of a continuing series on the impact of the drought.

As California’s drought crisis unfolds, there will be calls from many quarters for extraordinary actions to help reduce the economic and social costs to communities and sectors at risk. California’s leaders in Sacramento, Washington, D.C., and around the state will need to weigh the pressure to act against the risk of making snap decisions that provide short-term relief yet have much higher long-term costs. As I describe in a commentary for the San Francisco Chronicle – written with PPIC adjunct fellow and UC Davis Professor Jay Lund – water agencies have fallen into this trap when responding to some past droughts. For instance, excessive pumping from the Delta during the 1987–92 drought contributed to the establishment of some invasive species that have plagued management of this system ever since.

Fortunately, there are also positive lessons from past droughts that can help guide today’s actions. One is that a water market – which allows those with relatively ample supplies to lease water to those who don’t – can significantly reduce costs to cities, farms, and the environment. The governor has called for steps to make this kind of trading easier. Another lesson is that communities that diversify their supply sources and establish stronger linkages with neighboring water systems are better able to weather droughts. Parts of the state that are out ahead on this – including Southern California and much of the Bay Area – are in better shape today thanks to these investment.

Beyond the Drought: 10 Big Changes Ahead for California Water

These days, all water news in California is focused on the weather. After two successive dry years, this year’s rainy season has yet to make a decent showing. Unless the skies open soon, the state seems firmly headed for a major drought, with serious implications for the farm economy, some water-scarce communities, and the fish and other species that depend on our rivers and streams.

Periodic droughts are inevitable in California, given the state’s highly variable climate, and many scientists expect such extreme events to become more frequent with climate change. An essential part of water management in California is preparing for this inevitability—with multi-pronged strategies that include water marketing, groundwater banking, conservation, and investment in non-traditional supplies like recycled wastewater. Each drought provides an opportunity to get better at stretching scarce supplies and reducing the economic hardship caused by water scarcity, as PPIC’s California Water Myths report points out.

I recently wrote a piece—with Jay Lund, PPIC adjunct fellow and UC Davis professor—for the UC Davis Center for Watershed Sciences’ California WaterBlog that highlights 10 other inevitable changes in store for California water. These changes range from vulnerable levees and uncertain water supply conditions in the Delta to deteriorating groundwater basins to the shrinking Salton Sea. To minimize hardship and disruption, most of the items on our top 10 list will—like droughts—require significant preparation and planning. This is often hard to do, given the tradeoffs and costs of most water management solutions. But we think that preparation is the best way to reduce the pain and develop a water policy that supports the kind of state Californians want, rather than wishfully thinking that California can avoid change.