Monday, January 15, 2018

CA worst on the poverty rate (using a more sophisticated measure)

At first, I was surprised by the article title. The standard measure of poverty would put CA's rank in the mid-30's. But the popular stat does not adjust for cost/standards of living, implying that CA's true poverty will be understated. (Along those lines, this AM's trivia question: which city in Indiana has the highest poverty rate?)

But the author is using a more sophisticated measure of poverty which adjusts for cost-of-living and includes non-cash government assistance as a form of income (two of the four key ways in which the popular measure is deeply flawed). 
Because it's a better measure of poverty, it leads to better questions and hopefully, better inferences. Here, why is CA struggling so much?

One likely/easy answer: by their design, since they include cash (and here, non-cash) benefits, poverty rates are much more a measure of dependence on govt than standards of living. And to the extent that people are motivated by benefits and benefit reduction as income rises (on average, an implied 80-90% marginal tax rate), benefits will encourage earning less (reported) income. Since CA offers more liberal benefits, so they're going to generate more poverty.


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