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Falling Below the Poverty Line

By Deborah Reed, research fellow, Public Policy Institute of California
This opinion article appeared in the California Journal in the March 2002 issue

For people in many parts of the country and the world, California is synonymous with wealth, opportunity - and extremes. When it slid during the recession of the early 1990s, it slid farther than many other parts of the country. When it rebounded, the technological boom was felt around the world. By the end of that recent boom, it had become the fifth-largest economy in the world - not something one necessarily associates with high poverty rates

Yet, the truth is that after keeping its poverty levels below the national average for decades, the trend is now reversed. Today - and even during the recent years of prosperity - California poverty rates exceed the rest of the country, where poverty is at its lowest level in more than 30 years.

As in other states, the poverty rate in California moves with the economy, growing during recessions and declining in economic good times. During the state's rapid economic growth from 1994 to 2000, poor families benefited and the state poverty rate declined. But it also declined nationally, and today, Californians are still more likely to be poor than people elsewhere.

The state's poverty rate caught up and passed the rest of the nation in the late 1980s. Earlier, in 1969, the poverty rate in California was more than 3 points below the rest of the nation (9.1 percent compared to 12.5 percent). By 2000, California was nearly 2 points higher (12.9 percent compared to 11 percent).

Looked at in another way, California's poverty rate ranked 30th in the nation in 1980; by 2000, it was 12th. The highest poverty state in 2000 was New Mexico, followed by Louisiana and the District of Columbia.

The finding has significant financial and policy implications for California since a substantial share of the state's $100 billion budget is spent on services for low-income families and workers. In the long term, the research also indicates that conditions responsible for California's higher poverty rate could improve.

But analyzing the causes and seeking solutions to the problem are difficult because poverty varies by region, ethnicity, age and other factors. Also, the severity of the problem depends on how it is measured.

For example, here are some of the factors by which poverty varies within the state. (The statistics below are based on the standard measure of poverty: the share of people who live in families with income at or below the official federal threshold. In 2000, a family of two adults and two children was considered poor if its annual income was below $17,463).

  • Racial and ethnic groups: In 2000, among families whose heads of household were born in this country, the poverty rate for California whites was 8 percent, for Asians 9 percent, for African Americans 17 percent, and for Hispanics 18 percent. The highest poverty rates were for foreign-born Southeast Asians (23 percent) and foreign-born Hispanics (27 percent).
  • California regions: Poverty was lowest in the San Francisco Bay Area at 7 percent, and highest in the San Joaquin Valley at 22 percent. It was 17 percent in Los Angeles County.
  • Family structure: Thirty-seven percent of people in families headed by single women with children were living below the poverty level, the highest rate among the four major family types. The poverty rate was 18 percent for single adults without children, 12 percent for married families with children, and 4 percent for married families without children. To a greater or lesser degree, these statistics represent an increase for all four types over the last two decades - a marked contrast for the rest of the nation, where poverty rates have declined for all four.
  • Age groups: California's children have particularly high poverty rates. These rates grew from 11 percent in the late 1960s to almost 19 percent in 2000, compared with 16 percent in the rest of the country. Poverty rates for the elderly are much lower. While the rates increased from 4.8 percent in 1989 to 7.7 percent in 2000, they were still lower than the 10 percent for the rest of the nation.

One concern with the standard poverty measure, as used above, is that it does not reflect variation in the cost of living across states and regions. Using measures that account for these variations, poverty rates are even higher in California.

If the California poverty threshold were set at one-half the state's median family income, it would be $26,347 for a family of four in California. By this measure, the state's poverty rate in 2000 was 24 percent, compared to 21 percent in the rest of the nation. That would give California the second highest rate in the nation, after Washington, D.C.

Regional price differences, particularly housing costs, also affect the income needs of poor families. In San Francisco, for example, the U.S. Department of Housing and Urban Development estimates the annual fair-market rent for a two-bedroom apartment at $16,344 - representing more than 90 percent of the national poverty budget for a family of four. If we adjust for housing costs, California's poverty rate was 15 percent in 2000. The state would have the fifth-highest poverty in the country, behind Washington, D.C., New Mexico, New York, and Louisiana.

The stark reality of how many Californians live in poverty is even more apparent when it's presented in raw numbers. In 1970, 1.9 million people were poor in California. In 2000 that number more than doubled to 4.4 million, roughly equal to the combined populations of the cities of Los Angeles and San Francisco.

Why California Rates Are High

The explanation for the state's high poverty rates is not without irony. California's prosperity has always made it a magnet for those fleeing poverty or simply seeking a better life - from the 1930s victims of the Dust Bowl to the 1990s Asian entrepreneurs in Silicon Valley. This magnetism is a major reason for California's high poverty rates.

Research indicates the high overall poverty rate compared to the rest of the nation is mainly due to California's larger share of high-poverty groups, particularly Hispanics and Hispanic immigrants. Over the last two decades, poverty increased substantially among Hispanics in California, going from 18 percent in the late 1970s to about 24 percent in 2000. At the same time, over 30 percent of Californians were Hispanic in 2000 while in the rest of the nation, 10 percent were Hispanic.

From the standpoint of California's future, the condition of the state's children presents the greatest challenge. In 2000, almost one of every five children in the state lived in poverty. The national figure is 16 percent or one in six.



Several factors provide hope for improvement and implications for policy. Almost half of the state's children aged 5 or younger are in families headed by an immigrant. Nearly all of these children were born in this country and, as we have also seen, poverty rates for those born in the United States are lower. In other words, we can expect lower poverty rates for this second generation of immigrants.

Second-generation immigrants are less likely to be in poverty, by and large, because they have more education. Nevertheless, in 2000 the poverty rate for U.S.-born Hispanics (18 percent) was more than twice that of whites (8 percent). The challenge for the state is to improve their economic potential. Children who grow up poor not only suffer from lack of resources in childhood, they are also more likely to raise their own families in poverty. To break the cycle requires a focus on programs aimed at improving their chances of completing high school, entering college and, in turn, earning higher incomes.


Just the Facts: Poverty in California

A Portrait of Race and Ethnicity in California

Poverty in California

Welfare and Poverty Trends in California