A policy brief about proposals to close California’s $20 billion budget gap cautions that “all options for closing the budget gap are not equal.”
In Budget Solutions and Jobs, University of California-Berkeley researchers find that “the effects of cuts in social service programs would go well beyond the impact on jobs.”
Out of all the social service programs on the chopping block, the California economy can expect to suffer the greatest economic loss from the proposed cuts to the state’s In-Home Supportive Services (IHSS) program.
Under IHSS, about 360,000 personal care aides provide assistance with self-care and everyday tasks to approximately 400,000 people with disabilities living in their own homes.
The researchers conclude that $1 billion in cuts to the IHSS program would mean the loss of about 216,000 jobs over the course of one year.
Multiplier Effect
The estimated job loss is made up of 184,500 direct full-time equivalent IHSS jobs and 31,400 jobs lost to the “multiplier effect” — that is, the secondary ripple effects of reduced spending. Economic multipliers tell us how much an “economic shock” — such as spending cuts or tax increases — will affect the state’s economy.
For example, since low-income residents spend a greater share of their earnings, and spend more locally than do higher income residents, multipliers for the IHSS program are particularly high. Most of the funds go to low-income families.
In addition, the IHSS program brings in significant federal matching dollars, which serve to further stimulate the California economy. And in the IHSS programs, the cuts have a large employment impact because 85 percent of the program’s funding pays the wages for roughly 360,000 IHSS workers, whose average wage is $10 per hour.
Finally, the IHSS cut will have a direct impact on state and local tax revenue: an investment of $1 billion in IHSS brings back an estimated $360 million in state and local tax revenue. In comparison, a tax cut of $1 billion for upper-income households would result in only $70 million in additional tax revenue for the state.
A High Cost to Local Communities
Home and personal care programs have some of the highest effectiveness per dollar spent of all social welfare programs. As a result, reductions in state spending in these programs come at a very high cost in terms of the economic impact on local communities.
In the March 2010 brief, Ken Jacobs, T. William Lester, and Laurel Tan of the University of California-Berkeley’s Center for Labor Research and Education conclude that “with an unemployment rate of 12.5 percent and nearly 2.3 million Californians out of work, the Governor and State Legislature should take care to minimize the negative impact of the budget measures on employment.”
– by Dorie Seavey, Director of Policy Research
