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Testimony

Setting the Context: The Recession, Unemployment, and Poverty in California


By Sarah Bohn, research fellow,
Public Policy Institute of California

Testimony to the California Senate Budget and Fiscal Review Subcommittee No. 3 on Health and Human Services - March 21, 2013

Hearing on CalWORKs and CalFresh

Our researchers regularly provide expert testimony to policymakers. When possible, we make it available on our website.

My name is Sarah Bohn. I am an economist at the Public Policy Institute of California. I’m going to provide some context for your decisionmaking, by looking at how California is faring in the wake of the recession. I’ll first give some snapshots of California’s labor market, then discuss how conditions vary for different types of workers and families—particularly those relevant to CalWORKs and CalFresh. Last, I will present some facts on the ultimate question of how families are doing in terms of income and poverty.

First, a snapshot of California’s labor market: Job growth and unemployment numbers give us the most timely information on how workers are faring and whether businesses are hiring—a sign of economic growth—so I’ll focus on those. California’s employment grew at about 1.6 percent over the past year. While this sounds like a very small number, it is in fact a higher rate of growth than our average over the last three decades. This high rate of growth helps make up ground from three previous years of job loss, which you see in the big dip in this chart. (Slide 2) California is adding jobs at a faster rate than the country as a whole, and faster than many nearby or large states. This growth is led primarily by service industries in (1) science and technology (2) health care and (3) leisure and hospitality. High job growth in these sectors is helping compensate for continued losses in the government and manufacturing sectors, and the slow return to job growth in the construction sector.

The unemployment rate in California is falling, as you well know. (Slide 3) California’s unemployment rate was 9.8 percent as of January 2013, the lowest we’ve seen in about four years. However, it is still quite high by historical standards: An estimated 1.8 million people in California are looking for work.

To understand the labor market in full relief, we also need to consider people who have left it or are underutilized in some way. (Slide 4) Since the onset of the recession, more and more people have stopped looking for work altogether or are marginally attached to the labor force. The unemployment rate would jump as much as 2 percentage points if we counted individuals who are available for work but not looking because they believe there are no jobs or none for which they qualify. When on top of that, we add people working part-time who would rather be working full-time, the rate of labor underutilization jumps another 6–7 percentage points. There has been little improvement in these underutilization measures yet, and this indicates the problem of "underemployment” may be persistent.

In addition, we need to think about the demographic characteristics of the people who are unemployed. In these next few charts, I will show you unemployment statistics pertaining to the U.S. overall. But the takeaways pertain to the California labor market, as well. Married women with children have unemployment rates that are lower than average, but unmarried women with children are more than twice as likely to be unemployed. (Slide 5) Furthermore, the subset of unmarried women with kids younger than age 3 have nearly triple the rate of unemployment of married women with children. And actually, over the past three years, the rate of unemployment for this group of women has been climbing.

Similarly striking differences persist across workers of various education levels. (Slide 6) The lower the level of educational achievement, the higher unemployment rate—before the recession, during, and since. The good news is that unemployment is declining in all four education groups shown here. However none has reached its pre-recession level.

Overall, California’s labor market is recovering at a reasonable pace, but opportunities for different workers vary widely. After considering these labor market realities, it is not surprising to learn that many families are struggling. The median family in California was only doing as well by the end of 2010 as the median family was in 1980, in terms of total income. (Slide 7) This chart shows by what percentage family income at the median has increased or decreased since 1980. The gray bars mark periods of economic recession. At the median, family income tends to rise with economic booms and falls with busts. As yet, we have not seen the median family in California experiencing any recovery since the recent recession in terms of their income.

The story is quite different for families at either end of the income spectrum. (Slide 8) At the top end, the 90th percentile, family income is about 35 percent higher than it was in 1980. At the low end, the 10th percentile family is doing about 25 percent worse than in 1980. Over this period, low incomes usually have taken the largest hit in recessions and have taken longer to catch up. In fact, low incomes have never quite caught up to where they were in 1980. In 2010, the 10th percentile earned about $15,000—well below the federal poverty threshold for a family of four. We have yet to see household incomes rebound through 2011 (the most recent data), at least at the middle of the distribution.

The recent recession certainly impacted families across the distribution—and still is affecting many families. But if we take in this whole picture, we see it’s not just the recession that has affected family economic success in California. There are long-term, broad economic trends at play, as well, and these are related to the trends in education levels and labor market opportunities I discussed earlier. Broad economic trends have hollowed out opportunities for some workers—particularly those with lower levels of education— and increased opportunities for others, especially highly skilled or highly educated workers. These trends have resulted in historic gaps between high and low incomes in the state. Even if the recent recession hadn’t happened, we would likely still see this great disparity across the family income distribution in the state.

I want to spend the last few minutes focusing on those families at the bottom end of the income distribution. Along with income declines, we see a corresponding jump in the number of families falling below the federal poverty level. (Slide 9) California had the same poverty rate as the U.S. before the recession, but our poverty rate has since increased more rapidly. The official poverty rate is helpful in understanding poverty over the long run. However, it does not tell the whole story. For example, the official measure does not incorporate changes in the standard of living since the 1960s nor does it account for the differences in the cost of living in California and the rest of the country. In addition, it only counts cash income before taxes. Therefore we cannot use the official poverty rate to see how these families are doing after they receive CalFresh benefits or an earned income tax credit (EITC).

For these reasons, researchers are developing a "Supplemental Poverty Measure” (SPM) that uses a wider lens to view family poverty. (Slide 10) It adjusts for cost of living—housing costs, child care, work expenses— taxes, and participation in programs such as CalFresh, housing subsidies, and the school lunch program. It is useful in examining how much various factors, on the cost side as well as the benefit side, impact poverty. In that sense, it is a very useful tool in understanding family poverty more broadly. The Census has developed a SPM for the U.S., for demographic groups, and for states (on a three-year average basis only).

We at PPIC are collaborating with Stanford Center on Poverty and Inequality to develop a detailed California measure—a single-year, rather than three-year measure—with detail that accounts for regions, demographic groups, and public programs. A handful of other states have taken similar approaches. This new measure will be coming out in the fall of 2013.

The national analysis is already shedding light on how much safety net programs matter. Some programs matter a lot for children. Using the supplemental poverty measure, child poverty is lower than it is using the official poverty rate, and that is largely because of the SNAP and EITC programs. When the poverty measure does not include SNAP, it is nearly 3 points higher. When tax credits are excluded, it goes up another 6 points.

We hope that similar measures for California will shed light on poverty and family economic well-being, and ultimately help inform your decisions across a wide range of programs and issues. Given California’s ongoing labor market challenges, these are increasingly important decisions. I thank you for the opportunity to share my research with you today.

Related Publications

The Great Recession and Distribution of Income in California

California Economy: Planning for a Better Future

Related Policy Areas

Economy
Health and Human Services