California not only has the nation’s highest rate of poverty, thanks to high housing costs, but its highest level of income disparity, and raising the state’s minimum wage may be reducing job creation.
California, as we all should know by now, has the nation’s highest rate of poverty as measured by the Census Bureau’s supplemental – and most accurate – methodology.
The primary reason is California’s horrendously high cost of living, particularly for housing, that overwhelms the relatively meager incomes of millions of California families.
Even more troubling is a calculation by the Public Policy Institute of California, using similar methodology, that another 20 percent of Californians are living in near-poverty. Thus, about 40 percent of the state’s population, some 16 million of us, are in deep financial distress.
Two other pertinent data points: A third of Californians are enrolled in Medi-Cal, the state-federal system of health care for the poor, and 60 percent of California’s K-12 students are deemed at risk of academic failure due to poverty, lack of English skills or both.
Only a few million Californians receive welfare, so the vast majority of our poor are in working families, giving rise to another feature of California’s economic stratification – big gaps in incomes.
Jonathan Lansner, an economics writer for the Orange County Register and its sister newspapers, plumbed that phenomenon by feeding 2018 federal data on wages and salaries into a spreadsheet.
His findings, published last month, were that wages for those in the 75th income percentile “ran 72 percent greater than the median in California, a spread that topped all states ahead of No. 2 New York at 68.1 percent and No. 3 Virginia at 67.7 percent. And it was far above the 50-state median of 57 percent.”
Furthermore, Lanser wrote, “this wage gap is rising, especially in California. A decade earlier, the 75th percentile job statewide paid 66 percent more than the median wage.”
Lansner’s research underscored the irony of a deep blue state, whose politicians constantly express sympathy for the poor, having the widest income disparity in the nation, far more than those in more conservative states.
The political response to California’s income gap has largely been confined to efforts to raise incomes of the poor through such gestures as raising the minimum wage and creating a state-level “earned income tax credit” that sends checks to low-income working families. But Lansner’s data indicate that the gap is still widening and another new report implies that raising the minimum wage may be backfiring by reducing job creation.
The UC-Riverside’s Center for Economic Forecasting and Development studied recent increases in the minimum wage at the behest of the California Restaurant Association and concluded that it has markedly slowed job growth in that industry.
“Data analysis suggests that while the restaurant industry in California has grown significantly as the minimum wage has increased, employment in the industry has grown more slowly than it would have without minimum wage hikes,” the report concluded. “The slower employment is nevertheless real for those workers who may have found a career in the industry. And when the next recession arrives, the higher real minimum wage could increase overall job losses within the economy and lead to a higher unemployment rate than would have been the case without the minimum wage increases.”
Christopher Thornberg, the center’s director and author of the study, said the rapid pace of minimum wage increases “is creating certain negative consequences for smaller businesses and people who need the most help rising out of poverty.”
That captures the dilemma of California’s persistent poverty and demonstrates the unintended consequences of trying to reduce it by political decree, rather than by encouraging job creation and work-oriented education and reducing housing costs.