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Home / Carpe Diem / Suppose you live in America’s most liberal state. Now suppose you live in the state known as “poverty capital of America.” But I repeat myself. – Publications – AEI

Suppose you live in America’s most liberal state. Now suppose you live in the state known as “poverty capital of America.” But I repeat myself. – Publications – AEI

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AEI Suppose you live in America’s most liberal state. Now suppose you live in the state known as “poverty capital of America.” But I repeat myself. The table above shows US states ranked for two different measures of poverty: a) the official measure of poverty and b) the Census Bureau’s recently introduced (2011) Supplemental Poverty Measure (SPM), which accounts for each state’s cost-of-living, housing costs, utilities, medical costs and taxes. It also considers non-cash government assistance as a form of income and is therefore considered a more accurate measure of poverty than the official rate. For the country as a whole, the percent of Americans in poverty using the SPM of 14.1% for the years 2015-2017 (averaged) is 1.2 percentage points higher than the percent of Americans in

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Suppose you live in America’s most liberal state. Now suppose you live in the state known as “poverty capital of America.” But I repeat myself.

Suppose you live in America’s most liberal state. Now suppose you live in the state known as “poverty capital of America.” But I repeat myself. - Publications – AEI

The table above shows US states ranked for two different measures of poverty: a) the official measure of poverty and b) the Census Bureau’s recently introduced (2011) Supplemental Poverty Measure (SPM), which accounts for each state’s cost-of-living, housing costs, utilities, medical costs and taxes. It also considers non-cash government assistance as a form of income and is therefore considered a more accurate measure of poverty than the official rate. For the country as a whole, the percent of Americans in poverty using the SPM of 14.1% for the years 2015-2017 (averaged) is 1.2 percentage points higher than the percent of Americans in poverty (12.9%) using the official poverty measure.

On an individual state basis, the biggest changes in a state’s poverty rate between the two measures in each direction are: a) California’s official poverty rate of 13.4% ranked it No. 16 but the state moved up to No. 1 at 19.0% (highest state poverty rate in the US) using the SPM ( a difference of +5.6%) and b) Mississippi’s poverty rate ranked it No. 2 at 19.5% using the official measure but No. 4 at 15.9% using the SPM (a difference of -3.6%). Overall, 21 states, including California showed a greater percentage of people in poverty using the SPM, 26 states, including Mississippi, showed a lower percentage of people in poverty and two states showed no change (Georgia, Alaska, Washington).

Obviously, the reason for the increase in California’s (and 20 other states) poverty rate using the SPM is because of the state’s high cost-of-living including sky-high housing costs (median home price of $548,700) and because of high taxes and energy costs. And the decrease in Mississippi’s SPM poverty rate (and 25 other states) is because of that state’s low cost-of-living, including low housing costs (median home price of $128,700).

A January 2018 LA Times op-ed by Kerry Jackson, Pacific Research Institute fellow in California Studies, uses the SPM measure of poverty to answer the question “Why is liberal California the poverty capital of America?” Here’s an excerpt:

Guess which state has the highest poverty rate in the country? Not Mississippi, New Mexico, or West Virginia, but California, where nearly one out of five residents is poor. That’s according to the Census Bureau’s Supplemental Poverty Measure, which factors in the cost of housing, food, utilities and clothing, and which includes non-cash government assistance as a form of income. Given robust job growth and the prosperity generated by several industries, it’s worth asking why California has fallen behind, especially when the state’s per-capita GDP increased approximately twice as much as the U.S. average over the five years ending in 2016 (12.5%, compared with 6.27%).

It’s not as though California policymakers have neglected to wage war on poverty. Sacramento and local governments have spent massive amounts in the cause. Several state and municipal benefit programs overlap with one another; in some cases, individuals with incomes 200% above the poverty line receive benefits. California state and local governments spent nearly $958 billion from 1992 through 2015 on public welfare programs, including cash-assistance payments, vendor payments and “other public welfare,” according to the Census Bureau. California, with 12% of the American population, is home today to about one in three of the nation’s welfare recipients.

Kerry Jackson identifies several specific factors that collectively contribute to making California the “poverty capital of America.”

1. Welfare State Bureaucracy and Lack of Pro-Work Welfare Reform. The state and local bureaucracies that implement California’s antipoverty programs have resisted pro-work reforms. In fact, California recipients of state aid receive a disproportionately large share of it in no-strings-attached cash disbursements. It’s as though welfare reform passed California by, leaving a dependency trap in place. Immigrants are falling into it: 55% of immigrant families in the state get some kind of means-tested benefits, compared with just 30% of natives.

Self-interest in the social-services community may be at fault. To keep growing its budget, and hence its power, a welfare bureaucracy has an incentive to expand its “customer” base. With 883,000 full-time-equivalent state and local employees in 2014, California has an enormous bureaucracy. Many work in social services, and many would lose their jobs if the typical welfare client were to move off the welfare rolls.

2. High Housing Costs. Further contributing to the poverty problem is California’s housing crisis. More than four in 10 households spent more than 30% of their income on housing in 2015. A shortage of available units has driven prices ever higher, far above income increases. And that shortage is a direct outgrowth of misguided policies …. including restrictive land-use regulations that drive up the price of land and dwellings.

3. High Energy Costs. Extensive state environmental regulations aimed at reducing CO2 emissions make energy more expensive, also hurting the poor. By some estimates, California energy costs are as much as 50% higher than the national average. According to a 2015 Manhattan Institute study nearly 1 million California households face energy expenditures exceeding 10% of household income. In certain California counties, the rate of energy poverty was as high as 15% of all households.

4. $15 an Hour Minimum Wage. Looking to help poor and low-income residents, California lawmakers recently passed a measure raising the minimum wage from $10 an hour to $15 an hour by 2022 — but a higher minimum wage will do nothing for the 60% of Californians who live in poverty and don’t have jobs. And research indicates that it could cause many who do have jobs to lose them. “Estimates suggest that a one-dollar increase in the minimum wage leads to a 14% increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating),” according to a Harvard University study. These restaurants are a significant source of employment for low-skilled and entry-level workers.

And here is the pessimistic conclusion of Jackson’s op-ed:

With a permanent majority in the state Senate and the Assembly, a prolonged dominance in the executive branch and a weak opposition, California Democrats have long been free to indulge blue-state ideology while paying little or no political price. The state’s poverty problem is unlikely to improve while policymakers remain unwilling to unleash the engines of economic prosperity that drove California to its golden years.

Related: California ranked last year as America’s No. 2 Outbound State (second only to Illinois) based on household moves (64% outbound vs. 36% inbound) according to North American Van Lines’ 2018 US Migration Report. It is also noteworthy that 2017 was the first year that California (at 60% outbound) ever ranked in this national study’s Top Five outbound US states and that out-migration in recent years (64% last year) might be partly explained by the Golden State’s new status as the “poverty capital of America.”

Note: This is an update of a January 2018 CD post that generated more than 100 comments.

Suppose you live in America’s most liberal state. Now suppose you live in the state known as “poverty capital of America.” But I repeat myself.
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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