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Press Release · February 13, 2004

State’s Poorest Families Fare Better Than Expected In Recent Economic Slump – But Remain Worse Off Than In Earlier Decades

SAN FRANCISCO, California, February 13, 2004 — California’s recent downturn has not hit poor residents nearly as hard as have recessions of the past – nor has it significantly increased poverty – according to a study released today by the Public Policy Institute of California (PPIC).

California’s poorest families saw their incomes drop from $15,950 to $15,500 between 2000 and 2002. This 3 percent drop is a fraction of the 20 percent decline they experienced during the 1989-93 recession. Additionally, the state’s poverty rate increased only slightly in the recent downturn, rising from 12 percent to 13 percent – down considerably from its 1993 peak of 18 percent. “When the economy sours, the poor are generally hit hardest. We’re seeing a relatively mild effect now because the current downturn is less severe than in the early 90s and recent job loss has included high-income industries,” says economist Deborah Reed, PPIC program director and author of the study, Recent Trends in Income and Poverty.

Despite this decline between 2000 and 2002, poorer families have made large gains in income over the past 10 years. Between 1993 and 2002, the proportion of Californians living in low-income families dropped from 40 percent to 33 percent – larger than the 35 percent to 30 percent drop that occurred in the rest of the nation. During the same period, the relatively severe income gap between rich and poor in the state also declined. The reason? During the latest boom, income for the poorest families grew by 32 percent, while income for the most affluent families increased by only 17 percent. Another reason is that during the most recent recession, incomes for the poorest and richest families declined at the same rate, whereas during the recession of the early 1990s, incomes at the bottom of the distribution fell more than those at the top.

Despite gains in income in the past decade, the financial circumstances of low-income families have not improved enough to fully make up for the tremendous increase in income inequality and poverty that occurred during the 1970s and 1980s. Although today’s poverty rate is lower than it was in the early 1990s, it remains higher than in 1977 when it was just under 10 percent.

The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.