Policymakers Have Opportunity to Promote Economic Security, Break Down Barriers
Approximately 7.1 million Californians lived in poverty each year from 2016 to 2018 – more than 1 in 6 state residents (18.2%) – according to new Census data released this morning based on the Supplemental Poverty Measure (SPM).
The high cost of living in many parts of California is a key reason for California’s high SPM poverty rate, underscoring the continuing need for policies that address the state’s affordability challenges. High living costs are particularly problematic when they rise faster than incomes. This presents a challenge in California because inflation-adjusted wages in recent decades have grown only for the highest-paid workers, while wages for mid-wage and low-wage workers have remained largely flat, as highlighted in the Budget Center’s recent Labor Day report. Public supports like tax credits, public health insurance, and food assistance play a critical role in helping families and individual meet their basic needs as living expenses rise. New national data also released today show that many more individuals would be living in poverty if they did not have access to these vital public supports.
It’s also important to note today’s SPM figures provide a more accurate indicator of economic need in California than the official federal poverty measure that is frequently used. The SPM accounts for the high cost of living in many parts of the state as well as public supports that help families meet basic needs, among other factors. (See more below on how the SPM addresses shortcomings of the official poverty measure.)
Housing Costs Rising Faster Than Wages Are a Barrier for Californians
California’s high SPM poverty rate largely reflects the high housing costs in many parts of California. The SPM accounts for differences in housing costs across the country, unlike the official poverty measure, and when these costs are factored in, a much larger share of the state’s population is shown to be living in poverty: 18.2% under the SPM from 2016 to 2018, compared to 12.5% under the official measure.
Housing affordability is a problem throughout California, even in areas where housing costs are lower, because incomes are also lower in these areas. Statewide, more than half of renter households pay more than 30% of their incomes toward housing, making them housing cost-burdened, and nearly a third are severely cost-burdened, paying more than half of their incomes toward housing. California’s unaffordable housing costs are particularly a problem because they have been growing far faster than earnings for most workers. While inflation-adjusted median household rents increased by 16.1% from 2006 to 2017, median hourly wages for workers ages 25 to 64 actually declined by 0.5%. This decline in hourly wages for most workers is only one component of a broader picture of changes in the labor market – including a decline in employer-sponsored retirement plans, a drop in union representation, and a small but rising share of workers engaged in gig work – such that many Californians can no longer count on their jobs to provide economic security.
Housing costs in many parts of California are higher than the national average, as reflected in the relatively high poverty thresholds for many metro areas within the state under the SPM. These relatively high housing costs, which are factored into poverty under the SPM, are a key reason that California’s poverty ranking among the 50 states jumps from 18th under the official poverty measure up to first under the SPM, a dubious distinction.
Policies Are Needed to Help Californians’ Incomes Cover Basic Living Expenses
California’s high supplemental poverty rate focuses attention on two key challenges for the state: a high and rising cost of living, paired with stagnant earnings for all but the highest-paid workers. At the same time, the measurable impact of public supports in reducing poverty suggests that smart public investments to help individuals meet basic needs, together with a strong economy, can help more Californians achieve economic security.
State policymakers have taken several important steps in recent years to help address the challenges that residents with low incomes face in making ends meet. These include establishing the CalEITC – a refundable state tax credit targeted to low-earning workers – and subsequently expanding the credit, including adding a new Young Child Tax Credit for families with the youngest children; increasing the support available to families with children through CalWORKs, California’s welfare-to-work program; increasing access to affordable child care and health insurance; and pursuing multiple strategies to address housing affordability, both this year and in prior years. Policymakers have also taken some important steps to address changes in the labor market that have left workers with stalled wages and shrinking access to benefits, through policies such as raising the state’s minimum wage and creating CalSavers, a workplace retirement savings option for private sector employees.
Given that many Californians continue to live without enough resources to cover the costs of basic necessities, it is important to continue to build on the state’s recent investments to address affordability and the changing labor market. Thoughtful public policies can help make basic necessities like housing, child care, and health care more affordable; can help ensure that incomes for all Californians, not just the highest-paid workers, better match the rising cost of living; and can help restore the promise that all California workers get to share in the economic prosperity that they help to create.
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Note About the Census Bureau Data Released Today:
The state-level figures released today reflect average annual supplemental poverty rates during a three-year period, from 2016 to 2018. The SPM addresses a number of shortcomings of the official poverty measure. (See the Budget Center’s Guide to Understanding Poverty Measures for more details on the differences between these poverty measures.) For one, under the official measure, the income threshold for determining who lives in poverty is the same in all parts of the US. For example, a single parent with two children was considered to be living in poverty in 2018 if their annual income was below $20,231, regardless of whether they lived in a low-cost place like rural Mississippi or a high-cost place like San Francisco. The SPM better accounts for differences in the cost of living by adjusting the poverty threshold to reflect differences in the cost of housing throughout the US. For example, the SPM poverty line for a single parent with two children living in a renter household in San Francisco was $32,667 in 2018 – more than 60% higher than the poverty line based on the official measure.
Another shortcoming of the official poverty measure is that it fails to factor in the broad array of resources that families use to pay for basic expenses. The official measure only counts cash income sources, such as earnings from work, Social Security payments, and cash assistance from welfare-to-work programs. It does not take into account noncash resources, such as food or housing assistance, and it fails to consider how tax benefits, such as the federal Earned Income Tax Credit (EITC), increase people’s economic well-being. The SPM improves on the official measure by including these resources. It also better accounts for the resources people actually have available to spend by subtracting from their incomes what is needed to pay for necessary expenses, including work-related expenses, such as child care; medical expenses, such as health insurance premiums and out-of-pocket costs; and state and federal income and payroll taxes.
After incorporating these improvements over the official poverty measure, the SPM produces a more realistic picture of poverty in California: the state’s SPM poverty rate that was nearly 1.5 times the official poverty rate between 2016 and 2018 (18.2% versus 12.5%, respectively).
Although the SPM provides a more accurate picture of economic hardship in California, it does not indicate how much people need to earn to achieve a basic standard of living. Measures of what it actually takes to make ends meet in California show that families need incomes several times higher than the official poverty line to afford basic necessities.