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January 19 2018

Why Has the Golden State Beome the Poverty Capital of the U.S.?

by Charlotte Hays

California has surpassed Mississippi and West Virginia to claim the dubious honor of being the state with the highest poverty rate.  

If you haven't already been following the growth of poverty in the golden state, this may strike you as preposterous. California is home to a number of prosperous industries, especially the tech sector. California also has a per capita GDP that increased roughly twice the U.S. average leading up to 2016.

And yet the Census Bureau’s Supplemental Poverty Measure finds that nearly one out of four Californians is living in poverty. What gives?

Kerry Jackson has an excellent piece in City Journal analyzing the roots of California's poverty. Reading Jackson's article, I think that the kind of poverty California is seeing can be described as man-made poverty. The irony is that so much of California's poverty seems to have been created by public policies aimed at reducing poverty, primarily public assistance which theoretically should help alleviate poverty. But the opposite has happened.

Jackson writes:

Unfortunately, California, with 12 percent of the American population, is home today to roughly one in three of the nation’s welfare recipients. The generous spending, then, has not only failed to decrease poverty; it actually seems to have made it worse.

. . .

Immigrants are falling into [dependency]: 55 percent of immigrant families in the state get some kind of means-tested benefits, compared with just 30 percent of natives, according to City Journal contributing editor Kay S. Hymowitz.

One ostensible anti-poverty measure is raising the minimum wage. Helps the working poor, right? Well, look deeper:

Looking to help poor and low-income residents, California lawmakers recently passed a measure raising the minimum wage from $10 an hour to $15 an hour by 2022—but a higher minimum wage will do nothing for the 60 percent of Californians who live in poverty and don’t have jobs, and studies suggest that it will likely cause many who do have jobs to lose them.

A Harvard study found evidence that “higher minimum wages increase overall exit rates for restaurants” in the Bay Area, where more than a dozen cities and counties, including San Francisco, have changed their minimum-wage ordinances in the last five years.

“Estimates suggest that a one-dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating),” the report says. These restaurants are a significant source of employment for low-skilled and entry-level workers.

California also resisted instituting work requirements for welfare recipients that many other states adopted. Welfare rolls tend to fall when such requirements are established, but California welfare recipients receive a disproportionate amount of no-strings attached assistance.

If California's poverty is to some extent man-made, then correcting it should be possible, right? Kerry suggest that this is not the case in part because it is not only the poor who depend on poverty programs:

Self-interest in the social-services community may be at work here. If California’s poverty rate should ever be substantially reduced by getting the typical welfare client back into the workforce, many bureaucrats could lose their jobs.

As economist William A. Niskanen explained back in 1971, public agencies seek to maximize their budgets, through which they acquire increased power, status, comfort, and job security. In order to keep growing its budget, and hence its power, a welfare bureaucracy has an incentive to expand its “customer” base—to ensure that the welfare rolls remain full and, ideally, growing.

With 883,000 full-time-equivalent state and local employees in 2014, according to Governing, California has an enormous bureaucracy—a unionized, public-sector workforce that exercises tremendous power through voting and lobbying. Many work in social services.

California's man-made poverty seems to be just the latest example of how progressive policies enacted in the name of the poor often make it harder for the poor to escape poverty. 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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