In the five years before the pandemic, low-income Californians had begun to see substantial wage gains, chipping away at the income inequality gap between California’s haves and have-nots that has widened over the past 40 years. But the coronavirus pandemic is “likely stripping away many of these gains,” researchers at the Public Policy Institute of California found in a new report.
The current coronavirus-induced recession has hit low-income workers the hardest, while higher income workers, largely able to work from home, have escaped relatively unscathed. And those acute job losses among low-wage workers—particularly African Americans, Latinos, workers without college degrees and women—have stayed worryingly high through the fall, the researchers found.
This could be “exacerbating that kind of pattern of recession and recovery that’s worse for low-income families,” said lead author Sarah Bohn, who is the VP of research at PPIC.
“In fact,” she added, “these unemployment rate differences across income are a bit worse today than they were during the Great Recession.”
The findings were underscored by troubling new estimates of monthly poverty rates in the Golden State, from a group of researchers led by Zachary Parolin at Columbia University’s Center on Poverty and Social Policy.
“The monthly poverty rate in October was actually higher than rates during April and May, despite the fact that the unemployment rate declined over that time,” said Parolin at a live-streamed data release. That’s because the federal CARES Act stimulus checks and expansion of unemployment benefits have mostly expired.
With unemployment ticking up as California’s new regional shut down orders go into effect, the picture is likely worse now.
Parolin’s estimates replicate the U.S. Census Bureau’s annual Supplemental Poverty Measure, which accounts for safety net benefits and the cost of living, unlike the Official Poverty Measure. It’s a measure that California consistently tops.
Taken together, the two sets of research paint an alarming picture of deepening poverty that could take years if not decades for California to dig itself out of.
California lawmakers are already mulling solutions, though ambitious proposals made now often get reigned in by fiscal realities later in the spring.
Last week, Assemblyman Phil Ting, a San Francisco Democrat who chairs the budget committee, announced his priorities for the session. They included transitional kindergarten for all 4-year-olds, more financial aid for college students, more money for low-income families through the state’s Earned Income Tax Credit, and making parents who don’t work eligible for the state’s Young Child Tax Credit of up to $1,000.
“Our major priority is making sure we do everything to get money into the pockets of the most vulnerable Californians,” Ting said. “So many Californians are struggling. They’re on the brink of homelessness.”
Toni Symonds, chief consultant for the Assembly Committee on Jobs, Economic Development, and the Economy, speaking on a panel about the new poverty data said that lawmakers are considering expanding subsidized childcare for essential workers, salary subsidies for part-time workers at businesses reopening after regional shutdowns, and food assistance, such as the $365 the state gave to families with children last spring.
Matt Fleming, spokesperson for the Assembly Republican Caucus, said that Republican lawmakers, too, are focused on getting money into people’s pockets as quickly as possibly. They are considering bills to repeal AB 5, redirect funding for California’s floundering high-speed rail to education and fix the state’s beleaguered Employment Development Department. Above all, he said, they’ll advocate to keep businesses open and schools in-person as much as possible in the coming months.
“Gov. Newsom’s Covid shutdowns have disproportionately targeted those industries that provide jobs to low-income families,” said Senate Republican Leader Shannon Grove of Bakersfield in a statement. “Democrat policies have left them with fewer jobs, more unpaid bills, and less opportunity for their children.”
A Recent History of Economic Inequality
The gap between California’s haves and have-nots has yawned open since 1980, with the loss of manufacturing jobs, more automation, rising incomes for highly educated workers, declining collective bargaining power, and rising numbers of less-educated immigrants, the PPIC researchers wrote.
In 1980, wages for the 10 percent of families with the highest incomes was 7.4 times larger than families in the bottom 10 percent. By 2019, that ratio was 9.8.
Recessions have historically made inequality worse.
The highest-income families generally take a hit of up to 7 percent then recover within a few years. Meanwhile, the lowest income families often face “much steeper and deeper declines” of up to 20 percent in wages, PPIC’s Bohn explained. In three of the last four recessions, it has taken them a decade on average to recover their pre-recession wages.
But following the recovery from the Great Recession, things were looking up. A historically long period of economic growth had seen incomes for the poorest Californians rise from $20,000 in 2014 to $27,000 in 2019, a 34 percent increase that outpaced income growth for the highest earners.
Then the pandemic hit, putting entire low-wage sectors out of work, like restaurants, retail, entertainment, tourism, beauty and barber shops. In the spring, as many as 44 percent of workers in families with incomes below $30,000 were either unemployed, working part time though they preferred to work full time, or had stopped looking for jobs, pere the report. By the fall, the number hadn’t dropped much, at about 37 percent.
Are Solutions on the Horizon?
The billions of dollars that the CARES Act pumped into California lifted an estimated 3.5 million Californians out of poverty in April, Columbia’s Parolin said. But that number dropped to 600,000 in October as unemployment benefits dried up.
Another 750,000 Californians stand to lose unemployment benefits on Dec. 26, so if Congress doesn’t agree on a new stimulus package soon, California will see rising poverty rates in January, Parolin said.
Whether California’s short-term poverty rates stay high will largely depend on how Congress and the incoming Biden administration negotiate future stimulus packages.
Parolin said the feds could quickly reduce monthly poverty by increasing the maximum benefit for food stamps by at least 15 percent, which it did during the Great Recession.
“What is clear to me is we need another round of stimulus last month and the month before, if not right now,” said Amy Everitt, president of Golden State Opportunity, a non-profit that has advocated for expanding the state’s earned income tax credit.
Bohn emphasized that the state has policy options, too, and Californians are hungry to fight inequality. In a September survey, PPIC found that 59 percent thought the state should do more to reduce the gap between rich and poor. The idea was especially popular among African Americans, Asian Americans and Latino residents.
The PPIC report included a list of short-term state policy suggestions: targeting relief to hard-hit businesses, expanding safety net benefits including to undocumented workers, investing in job training for workers in sectors like leisure and hospitality that may not recover, expand subsidies for child care.
Bohn warned that “over the long term, getting jobs back is not sufficient for improving the score of inequality.” The report recommended that the state improve long-term economic mobility by investing in access to high-quality child care and higher education and taking “corrective policy actions” to reverse long standing underinvestment in low-income and communities of color.
Riverside County Supervisor V. Manuel Perez said more funding for childcare was “essential” to getting families out of poverty, as is improving broadband access, which he called an “issue of civil rights” for children of color.
His largely Latino district, which encompasses the Coachella and Palo Verde Valleys, is a microcosm of California’s persistent inequality, he said, even though “there’s a picture out there that the Coachella Valley is a playground.”
“Quite frankly, it is for those that have, and it’s not for those that don’t,” Perez said.
This article is part of the California Divide, a collaboration among newsrooms examining income inequality and economic survival in California.
> Coronavirus Wipes Away Wage Gains for Lowest-Income Earners
> The Mercury News
Well, if San Jose Inside is just going to be the Mercury News, and no one reads the Mercury News, . . . well . . .
Do the math.
Totally predictable from day one of the lockdowns, which disproportionately target restaurants and the retail service sectors that supply jobs for low-income employees.
Next article will be how multiple generations of people will have negative net worth thanks to the idiotic eviction moratorium. What are we up to $15000 per low income tenant to be settled via wage garnishing?
Transitional kindergarten? Financial aid for college students? Money for low-income families through tax credits? Expanding subsidized childcare? Salary subsidies for part-time workers? Food assistance? Yes to all of the above but all of the above amount to long-term, microscale responses to colossal, short-term challenges.
In the face of significant, perhaps permanent, job losses, small business closures, pending evictions and growing food insecurity, the political leadership is engaged in infinitesimal incrementalism which amounts to a dead end by a thousand cuts. The scale of the proposed response will be, as usual, very late light and billions short.
The basic problem is the neoliberal outlook of the political leadership, one that is groomed, vetted and deployed by the wealthy elites who run the show. The emphasis is always on staying within the budget, never on expanding revenues to achieve socially responsible and socially just solutions. Thus, even with an unexpected $26 billion windfall in state tax revenues anticipated for 2020-2021 (https://lao.ca.gov/Publications/Report/4297), neither Ms. Botts, nor anyone interviewed in this piece mentions the existence or potential use of those significant funds to address the COVID-19’s dislocations in California.
Nor does anyone interviewed in this piece even hint a the importance of increased taxation, including taxation of wealth– particularly the wealth that was accumulated as a result of COVID-19 conditions–in both addressing the dire conditions of millions of Californians and in creating more robust and permanent safety net in the state. To their credit, the Public Policy Institute of California report cited in the article (see pages 32-34), note both the popular support for, and efficacy of, higher income and wealth taxes in addressing poverty and inequality in California (https://www.ppic.org/wp-content/uploads/incoming-inequality-and-economic-opportunity-in-california-december-2020.pdf). As I have calculated elsewhere, small wealth taxes on the top 1-10% of wealth holders in California can yield substantial sums without damaging the lifestyles of the rich and famous (https://sanjosespotlight.com/state-proposal-would-drain-145m-from-santa-clara-countys-general-fund/?unapproved=15914&moderation-hash=208dc39cdcacca81914e745e85283547#comment-15914).
The social science is unambiguous: wealth taxes are the most powerful, perhaps the only feasible, way to collectively dig out of the COVID-19 disaster. Economists and institutions worldwide are increasingly agreed on this. (See https://www.cbpp.org/blog/states-should-tax-wealth-to-respond-to-covid-19; https://www.nytimes.com/2020/04/21/opinion/coronavirus-wealth-tax.html; https://www.weforum.org/agenda/2020/08/how-redesigned-wealth-taxes-could-help-us-weather-the-coronavirus-crisis/; https://www.cnbc.com/2020/09/17/economists-stiglitz-and-piketty-us-needs-a-wealth-tax.html; https://www.businessinsider.com/governments-wealth-taxes-imf-new-source-revenue-coronavirus-economy-consider-2020-4).
Let’s put and keep the necessary pressure on Sacramento to follow the science.
Finally, we get to hear from a Marxist.
Isn’t it great? And the “Marxists” are everywhere! In addition to the comments section of San Jose Inside, you will find them at the Center on Budget and Planning Priorities; on the opinion pages of the New York Times; on the World Economic Forum website; among Nobel Prize winning economists like Joseph Stiglitz; and even at the ultra-conservative International Monetary Fund.
Who knows, maybe HB will find one or two under his bed or in his closet? I just caught a glimpse of three of them trying to redistribute resources before my very eyes. It was rather horrifice: https://www.youtube.com/watch?v=6lHaAjGgFiQ