Census Data Show That Gains During the Recovery Have Failed To Reach Middle-Income Families

September 18, 2012

One of the most eye-opening findings from the Census data released last week was the stunning deterioration in middle-income Californians’ purchasing power during the Great Recession and its aftermath. Between 2006 and 2011, the state’s median household income – the income exactly at the middle of the distribution – fell by approximately $8,300 after adjusting for inflation, a 13.5 percent decline. California’s typical household income now stands at its lowest level since 1994, which means that virtually the entire increase in median household income that occurred during the economic boom of the 1990s has been erased.

The impact on families of losing $8,300 during the past five years is substantial: That amount of income could have been used to buy enough groceries to feed a family of four for nearly a year. Viewed another way, the income that California’s typical household lost due to the recession would cover nearly half a year’s rent for a two-bedroom apartment in Los Angeles County or approximately eight months’ rent for a two-bedroom apartment in the Sacramento region.

The latest Census data raise an important question: Why didn’t middle-income Californians start to recover from the downturn last year, given that it was the second full year that the national economy expanded since the end of the recession?

As Jared Bernstein discusses, the answer is that the economic expansion has produced gains only for those at the very top of the income distribution. The new Census data show that at the national level the share of income going to the top 5 percent of households – those with annual incomes over $185,000 – rose between 2010 and 2011, while the share going to households in the bottom four fifths declined. In fact, an analysis by the Center on Budget and Policy Priorities shows that the top fifth of US households’ share of income was the highest on record last year, and records began in 1967. In stark contrast, the share of income going to each of the bottom three fifths was the lowest on record. And most likely these data substantially understate gains at the top because they don’t include income from capital gains – a key source of earnings for the wealthy. Data compiled by UC Berkeley economics professor and inequality expert Emmanuel Saez show that when income from capital gains is counted, a full 93 percent of the increase in total US family income between 2009 and 2010 – the first full year of recovery and the most recent period for which data are available – went to the top 1 percent, largely reflecting the rebound of the stock market that year.

Economic growth reaches low- and middle-income families primarily through the job market, not the stock market. That means gains in employment and wages are the key to a more broadly shared economic recovery. In California, as in many other states, the job market has been slow to bounce back from the downturn, partly because budget cuts resulted in fewer jobs for teachers, school counselors, and librarians as well as other public sector workers. Stemming this job loss by avoiding deeper cuts would help speed up California’s job market recovery, enabling the benefits of economic growth to reach more families. Leading economists argue that policymakers should avoid a cuts-only approach to closing state budget gaps for this very reason: budget cuts cost jobs. Instead, they argue that “it is economically preferable to raise taxes on those with high incomes” when the economy is weak. Targeting tax increases to high-income earners, who are more likely to save than to spend their incomes, has far less of an impact on local communities.

Our recently released analysis shows that Proposition 30 is part of a balanced approach to closing California’s budget gap – the kind of approach that is favored by many economists. It would raise new revenues primarily from the wealthiest 1 percent of Californians in order to prevent deeper cuts to public schools, colleges, and universities – institutions that enable low- and middle-income children to move up the income ladder as adults. In other words, the measure asks those who benefited the most from recent economic growth to contribute the most to laying the groundwork for the state’s future prosperity.

— Alissa Anderson

State Poverty Rate Remains at One in Six

September 12, 2012

Census Bureau data released today show that 6.4 million Californians – about one in six state residents – were living in poverty in 2011. That means there were more Californians living in poverty last year than there were residents of the cities of Los Angeles, San Diego, and San Francisco combined. The state’s poverty rate increased by a statistically significant 4.7 percentage points from 12.2 percent in 2006, the year before the Great Recession began, to 16.9 percent in 2011 – the highest poverty rate in 15 years. The change in the poverty rate between 2010 and 2011 was not statistically significant.

Children represent a disproportionate share of Californians living in poverty. While individuals under age 18 accounted for only one-quarter (24.7 percent) of the state’s residents in 2011, they accounted for more than one-third (35.6 percent) of Californians living in poverty that year. The child poverty rate also far exceeds that for adults. Approximately one out of four children (24.3 percent) lived in poverty last year, compared to 15.6 percent of Californians ages 18 to 64.

California’s child poverty rate is particularly troubling given research documenting lasting consequences for children raised in poverty, from lower levels of educational attainment to lower earnings as adults. Childhood poverty not only can mean a life of hardship for individual children – a reason for concern in its own right – but also can impose significant costs to society as a whole through these children’s lost potential.

The Census data released today highlight the importance of fostering a faster recovery in California’s job market by avoiding deeper state spending cuts that cost jobs. Poverty tends to rise and fall in tandem with unemployment, and the state’s jobless rate has remained stubbornly high – in recession-like double digits – due to limited job growth since the national recession ended more than three years ago. As we documented in a recent report, continued job losses due to budget cuts are partly to blame for holding back California’s job market recovery. K-12 public schools and community colleges, for example, have lost tens of thousands of jobs since the downturn ended, and these job losses have offset a portion of the state’s private sector job gains.

This November, voters will have the opportunity to approve new revenues that not only would prevent significant midyear cuts to public schools, colleges, and universities – the building blocks of a strong economy – but also could help avoid deeper cuts to the state’s social safety net at a time when millions of Californians remain in poverty in the aftermath of the Great Recession. By raising significant new revenues – predominantly from the wealthiest 1 percent of Californians – Proposition 30 would begin to reverse years of disinvestment in our state and create a solid foundation on which to rebuild, as we discuss in our analysis of the measure published yesterday.

— Alissa Anderson

New Data Show Big Jump in Poverty in California

September 10, 2009

New Census Bureau data released today – and analyzed in a new CBP publication – show that the recession is taking a significant toll on many Californians. One of the most startling findings is that poverty has jumped substantially. The poverty rate for all Californians rose from 12.7 percent in 2007 to 14.6 percent in 2008, leaving 5.3 million Californians living below the federal poverty line ($21,834 for a family of four with two children in 2008). The share of California’s children living in poverty also skyrocketed in 2008, rising above 20 percent for the first time since 1999. The new data also show that the share of Californians under the age of 65 with job-based health coverage slipped to 56.2 percent in 2008, continuing a multiyear downward trend.

Perhaps the most sobering aspect of these glum statistics is that they represent only the tip of the iceberg. The state’s economy deteriorated further in 2009, as we showed in our recent Labor Day report, so the Census Bureau data released today show just the beginning of what could become a substantial decline in living standards for low- and middle-income Californians.

All of this points to the need for more federal assistance, including more aid to prevent further state budget cuts, an extension of unemployment insurance benefits, and the passage of comprehensive health reform.

— Scott Graves

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