STATE OF WORKING ARIZONA

Fall, 2008 STATE OF WORKING ARIZONA Public Policy Helps Arizona Families Move Ahead with Education, Child Care and Health Care In 2008, the mortgage crisis toppled Arizona s housing market, dramatically changing the profile of Arizona s economy and working families. In a period of two years, Arizona shifted from being one of the highest job growth states in the country to one of the lowest. As Arizona struggles to cope with the economic impact and to rebuild stability and opportunity, it is important to understand trends in job growth prior to the economic downturn. Examining these trends provides insight into what was working and what remained weak even in a time of economic expansion. This view of the recent past can help us to steer toward a brighter future. The data, based on US Census data from 2007 and years prior, shows that Arizona was closing many of the economic gaps that the state struggled with for years, including the earning gap between men and women, Whites and Hispanics, and the income gap between Arizona and the national average. Other gaps were growing. The difference between earnings for people without a high school diploma and people with a college degree was greater than ever before. Arizona s rate of insured people dipped further below the national rate compared to early in the decade. Examining the trends shows that public policies matter for working families. Arizona Economy and Workers have Seen Improvements in Recent Years Over the last 30 years, the state s population increased by 160%, growing from 2.4 million to 6.3 million. Since the 2000 census, Arizona added 1.2 million residents, placing the state second to Nevada in growth (Nevada s growth was 28%). In raw numbers of residents, only Georgia, Texas, Florida and California exceed Arizona. Arizona s minimum wage law, passed by voters in 2006, led to higher wages for the state s lowest income workers and brought the state s median wage and income close to the U.S. average. KidsCare health coverage increased the rate of Arizona children with health insurance even at a time when employer-based coverage was dropping. Not surprisingly, Arizona also experienced tremendous employment growth. Year after year, the growth rate consistently exceeded the national average. At the beginning of the decade, when many states experienced a difficult period of job loss, Arizona s employment opportunities continued to grow. Beginning in 2002, the gap between the national average and Arizona has widened. Arizona s employment growth is second only to Nevada. YEAR-OVER-YEAR CHANGE 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Change in Employment 99-00 00-01 01-02 02-03 03-04 04-05 05-06 -1.0% United States Arizona

Overall Unemployment Low Looking at unemployment, Arizona s rate closely follows the pattern of national unemployment, but remains at a slightly lower rate. Since 1979, the state s unemployment rate has exceeded the national average only five times; the last time was in 2002. Unemployment Down For Hispanic Families Hispanics make up Arizona s largest minority population. Since 1981, Hispanic Arizonans have consistently experienced a higher rate of unemployment than White Arizonans. The gap has narrowed since the mid-1990s. In 2007, Hispanics living in Arizona had an unemployment rate of 4.8% compared to 3.0% for Whites. The greatest difference was in 2000, when Hispanic Arizonans had an unemployment rate of 6.8% versus 2.9% for Whites. Arizona s already low overall unemployment rate is reduced further for workers who have achieved educational milestones. UNEMPLOYMENT RATE PERCENT UNEMPLOYED Arizona Unemployment Rate Follows National Trend 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1979 1981 1983 1985 United States Difference in Unemployment Rates Between Hispanics and Whites Narrowing 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Whites 1987 1989 1991 1993 1995 Arizona Hispanics 1997 1999 2001 2003 2005 2007 Education Reduces Unemployment Arizona s already low overall unemployment rate is reduced further for workers who have achieved educational milestones. Individuals who have not completed high school are nearly twice as likely to be unemployed as those with a diploma or GED. Post-high school education reduces the likelihood of unemployment further, with those who possess a Bachelor s degree or higher being only half as likely to be unemployed as someone with a high school diploma or GED. UNEMPLOYMENT RATE 10% 8% 6% 4% 2% 0% Arizonans with Less Education More Likely to be Unemployed Less than high school High school graduate/ged Some college Bachelor s or higher 2

Higher Education Results in Higher Wages Educational achievement makes a difference in wages and the difference has increased over time. In 1979, the difference in the median wage for someone possessing a Bachelor s degree or higher versus someone with less than a high school diploma was $8.73. By 2007, the gap increased to $13.10. Individuals without a high school diploma or GED have also lost purchasing power the median hourly wage for someone without a high school diploma or GED has fallen from $10.51 in 1979 to $9.93 in 2007. Educational achievement makes a difference in wages and the difference has increased over time. Educational Achievement Means Increased Pay Education Less than high school High school diploma/ged Some college Bachelor s or higher HOURLY WAGE (2007 DOLLARS) $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 1979 1989 1995 2000 2007 $10.51 $9.48 $8.27 $9.57 $9.93 $13.03 $11.56 $11.41 $12.79 $14.06 $12.49 $13.63 $13.20 $14.39 $14.75 $19.24 $21.45 $20.48 $21.79 $23.03 College Degree Has Become More Important 1979 1989 1995 2000 2007 Less than high school Bachelor s or higher 3

Pay for Women Closer to Pay for Men More than Half of Arizona Women Participate in the Labor Force 2007 In the last 30 years, women have increasingly joined the paid labor force 51.7% of married-couple households are also dual-worker households. Overall, Arizona female labor force participation rates have risen from 48% in 1979 to 56% in 2007, compared to 51% and 59%, respectively, for the US. Not in Labor Force 45% In Labor Force 56% The median wage for Arizona men has exceeded that of women, but the gender wage gap is narrowing. In 1979, the median hourly wage for men was $6.73 higher than the hourly wage for women. By 1995, the gap narrowed to $3.24. Data from 2007 shows the gap to be $1.26. Difference in Wages Paid to Men and Women Narrowing Gender 1979 1985 1990 1995 2000 2005 2006 2007 Male Female Difference $17.58 $17.22 $15.32 $14.37 $15.62 $16.02 $15.45 $15.61 $10.85 $11.48 $11.67 $11.13 $12.87 $13.60 $13.91 $14.35 $6.73 $5.74 $3.65 $3.24 $2.75 $2.42 $1.54 $1.26 50th percentile (median wages), adjusted to 2007 dollars using CPI-U-RS. The wage gap between men and women is narrowing. 4

Arizona Wages Improving Minimum Wage Makes a Difference Arizona is also closing the gap on the overall median hourly wage compared to the national median wage. In 2007, Arizona s median wage was only $0.10 behind the national median wage. This is due, in part, to the adoption of a state minimum wage. In November 2006, Arizona voters approved the Raise the Minimum Wage for Working Arizonans Act, which, effective January 1, 2007, created an Arizona minimum wage of $6.75 and indexed it to go up with inflation (based on the Consumer Price Index). The adoption of the Arizona minimum wage had the greatest impact on hourly wage for workers at the 10th and 20th percentiles. Workers in the lowest percentile, who experienced a decrease in their hourly wage between 1979 and 2005, when adjusted for inflation, saw a 5% increase between 2005 and 2007 as a result of the minimum wage. Workers at the next lowest percentile experienced a 4.2% increase between 2005 and 2007, while wages at higher percentiles experienced lower or no growth. It is estimated that 303,000 Arizona workers benefitted from the change in the minimum wage, either because their current hourly rates were within the range of the minimum wage or because their employer raised their rates to keep above the minimum wage. Arizona Workers Made Gains in Hourly Wages Arizona Minimum Wage Law Makes a Difference 10th percentile 20th percentile 50th percentile (Median) 80th percentile 90th percentile Hourly Wage 1979 2005 2007 $7.80 $7.62 $8.00 5.0% $8.89 $9.38 $9.77 4.2% $13.65 $14.96 $15.00 0.3% $22.68 $24.34 $24.42 0.3% $28.82 $32.11 $32.02-0.3% % Change % Change 2005-2007 1979-2007 2.6% 9.9% 9.9% 7.7% 11.1% In 2007, Arizona s median wage was only $0.10 behind the national median wage. MEDIAN HOURLY WAGE (2007 DOLLARS) $16.00 $15.00 $14.00 $13.00 $12.00 Arizona Closing Gap on Hourly Wage 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 United States Arizona 2001 2003 2005 2007 5

Federal Minimum Wage Lost Its Purchasing Power Arizona Adopted Its Own to Bring the Value Back Up $7.00 $6.00 $5.00 $4.00 5.15 5.07 4.96 4.80 4.67 4.59 4.49 4.38 4.23 4.10 5.23* $3.00 Prior to Arizona adopting its own minimum wage in 2007, the purchasing power of the federal minimum wage, which had not changed since 1997, had fallen 20 percent. (Congress has since increased the federal minimum wage to $5.85 per hour effective July 24, 2007; $6.55 per hour effective July 24, 2008; and $7.25 per hour effective July 24, 2009.) The value of the $5.15 rate adopted in 1997 was reduced to $4.10 by 2006. Arizona families are also catching up with the national average as far as income. Family Income Improving Arizona families are also catching up with the national average as far as income. In 2007, the median income for an Arizona family of four was $69,210, just $4,066 below the US average of $73,276. The gap between Arizona and the national average has diminished from a high of 14% in 2004 to 6% in 2007. Purchasing power of $5.15 federal minimum wage adjusted yearly for inflation; *The 2007 Arizona minimum wage of $6.75, adopted by Arizona voters in November 2006, would have had a value of $5.23 in 1997. ANNUAL MEDIAN INCOME (2007 DOLLARS) $2.00 $1.00 $0.00 1997 $80,000 $75,000 $70,000 $65,000 $60,000 $55,000 $50,000 1998 1999 2000 2001 Arizona Median Income for Four-Person Families Catching Up with United States 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 United States 2002 2003 Arizona 2004 2005 2006 2007 6

Children and Low-Income Families Still Struggling Arizona Children Are Falling Behind Throughout the United States, children are more likely to live in poverty than the general population. This trend is also true in Arizona. One out of every five Arizona children lives below the federal poverty level (see discussion below) and nearly half (45.5%) live in low-income families (200% of the federal poverty level). This is well above the national rate of 39.4%. PERCENT OF POPULATION LIVING IN POVERTY - 2007 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Children More Likely to be Poor than General Population 30.5% 12.5% US General Population 39.4% 18.0% US Children 200% of Poverty Level 100% of Poverty Level 34.4% 14.3% AZ General Population 45.5% 20.0% AZ Children Many Working Families Struggle to Afford Basics The chart right depicts the dilemma facing many low-income families. Although both parents work full time jobs, almost nothing ($1.00) is left over after paying for housing, transportation, food, health insurance premiums, child care, taxes and telephone. Fortunately, these families qualify for KidsCare health insurance, which also includes coverage for parents, providing low health insurance premiums based on a sliding fee schedule. For a family with two children, one in child care full time and one part time, child care expenses have thegreatest impact on their budget. Their food budget is frugal and they struggle to pay for important family expenses, including school supplies, haircuts, clothing and personal items. Monthly Expenses for a Married Couple with Two Children A 3-year old and a 7-year old each parent works full time and earns $8.66 per hour Earnings Expenses: Child Care Housing Food Transportation Health Premiums (KidsCare) Taxes Telephone Remainder Available for cover clothing, school supplies, haircuts, personal items Monthly $3,003 1,078 862 538 351 120 33 20 $1 Annual $36,036 12,936 10,344 6,456 4,212 1,440 396 240 $12 One out of every five Arizona children lives in a family with income below the federal poverty level and nearly half live in low-income families. 7

Despite being part of the workforce, many Arizona families struggle to afford even the basics such as housing, food and health care. Low-income families who earn too much to qualify for food stamps and child care subsidies find it particularly difficult. Additional Progress Needed with Health Insurance Arizona lags behind the rest of the country in terms of the percentage of people covered with health insurance. While the trend among the US general population remained relatively stable, Arizona lost ground between 2000 and 2005. This trend would have been even worse if not for Proposition 204, which Arizona voters approved in 2000. This law makes public health insurance available to all adults with an income below the Federal Poverty Level. PERCENT WITH HEALTH COVERAGE 88% 86% 84% 82% 80% 78% 76% 74% 72% 84% 77% General Population has Lost Health Insurance Coverage Since Early 2000s United States Arizona 85% 80% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 NOTE: Three-year rolling averages; e.g., the data for 2000 is the average of 1999, 2000 and 2001 Despite being part of the workforce, many Arizona families struggle to afford even the basics such as housing, food and health care. 8

In contrast to the general population, the percentage of Arizona children with health insurance coverage increased from 75% in 1997 to 84% in 2007. This improvement can be largely attributed to the implementation of KidsCare in 1998, which expanded coverage for children and their parents whose incomes are between 100% and 200% of the Federal Poverty Level. KidsCare offers comprehensive, cost-effective coverage to children at a time when fewer employers are providing such coverage to their employees or dependents. Economic trends continue to leave many working Arizonans behind. Health Care Coverage Improving for AZ Children Thanks to KidsCare 100% PERCENT WITH HEALTH COVERAGE 18 YEARS OLD AND YOUNGER 95% 90% 85% 80% 75% 85% 75% 88% 84% 70% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 United States Arizona NOTE: Three-year rolling averages; e.g., the data for 2000 is the average of 1999, 2000 and 2001 The percentage of Arizona children with health insurance coverage increased from 75% in 1997 to 84% in 2007. 9

Recommendations to Strengthen Working FamIlies Arizona s economy boasts fast job growth and rising wages during the last 10 years, but economic trends continue to leave some working Arizonans behind. Arizona has higher than average adult and childhood poverty rates and one of the lowest rates of health insurance coverage in the country. Given that many Arizonans work hard for a living, yet still struggle to get by, it is clear that employment alone is not enough. Smart public policy can create the tools working families need to climb the ladder of economic success. This was seen with the adoption of Arizona s own minimum wage and the creation of the KidsCare health insurance program for children in low-income families. Additional changes to public policy can further strengthen working families. Education, Workforce Development and Training: Compared to the nation, Arizona has a high rate of young adults without high school diplomas. Young adults who do not complete high school face poor prospects in the labor market and are more likely to be unemployed or underemployed than their peers who graduate. Twenty-five percent of Arizonans age 25 or older have earned a Bachelor s degree, less than the national average of 28%. In addition to strengthening state policy and resources to help students stay in school, investments are needed in basic education and literacy to reach students who leave the school system without the foundation they need to be successful. Rules for need-based financial aid can be made more flexible to allow low-income working adults with families to qualify for postsecondary education and vocational training. Investment in training new and incumbent workers can result in higher paying jobs with benefits while offering Arizona employers access to a more skilled workforce. Child Care: More than half of Arizona children under age 6 in both two-parent and single-parent households, require child care while their parents work. These families need safe, affordable child care so that parents can work and children can thrive. The median cost of child care ranges from $463 per month for preschoolers to $737 for children under the age of one. Because these real-life child care costs are out of reach for many hardworking, low-income families, subsidies are offered to qualified working parents with the double return of helping parents afford child care that is good for their kids and helping parents produce in the workforce. For over four decades, Arizona has joined the other states in the nation in helping low-income working parents Like roads, airports and water treatment systems, quality child care is part of Arizona s economic infrastructure. pay for child care. However, Arizona s subsidy rates are outdated by more than eight years. Arizona is one of only two states still paying rates based on the cost of child care in 2000. And parents who work hard to get promotions or find higher paying jobs find themselves worse off financially because they have to pay more for child care. With slight income increases, families lose child care subsidies entirely and the full cost of child care outweighs their income increase. Like roads, airports and water treatment systems, quality child care is part of Arizona s economic infrastructure. Just as bridges deteriorate without repair, our child care structure erodes with years of neglect. And the consequences are just as risky for the future of our families. Arizona should update child care rates and provide incentives to families as they climb out of 10

poverty by giving them a transition period to phase out child care subsidies. Earned Income Tax Credit: The Earned Income Tax Credit (EITC) is a refundable federal income tax credit primarily for lower-income working families with at least one qualifying child. Depending on income level and the number of children, the EITC can add up to $5,000 to a family s pocket, making a $7 an hour job worth $9 an hour. The tax credit is one of the most important and successful anti-poverty tools in the United States. EITC puts more than $700 million back into Arizona s economy with the purchases of groceries, rent, school supplies and other necessities. Nationally, 20 to 25 percent of qualified households do not file the needed paperwork to claim EITC. People can receive free assistance in filing their taxes and applying for the EITC credit from trained tax preparers at Volunteer Income Tax Assistance (VITA) sites. More qualified people in Arizona could be reached by: Designating a lead agency in Arizona that can coordinate publicity about EITC using public media, church bulletins, speakers bureaus, neighborhood newsletters, brochures, etc., to reach eligible filers. Using GIS mapping to identify areas with large numbers of eligible families to locate VITA sites. Supporting existing VITA sites with paid coordinators, volunteers and computer hardware for electronic tax filing. Recruiting new volunteers to staff VITA sites and retaining experienced volunteers. Health Care Coverage: The accomplishments of the past decade in Arizona health care coverage demonstrate why strong public programs, AHCCCS and KidsCare, matter. Both the passage of Proposition 204 and the implementation of KidsCare reduced the size of the problem; without these public efforts, Arizona businesses and consumers would face a tremendously higher cost burden from lack of primary care and high utilization of emergency rooms. Since we know AHCCCS and KidsCare work, Arizona should focus on continued improvements, such as: Continue statewide KidsCare outreach. Up to 75% of the children currently uninsured are already eligible for AHCCCS or KidsCare. Studies and experience show that outreach efforts help link eligible children with available coverage including many poor children. Enrolling all eligible but uninsured children not only reduces the burden of uncompensated care for Arizona health care providers, it ensures children are treated for minor problems before they develop into more serious health risks, keeps them healthy and in school, and prevents their parents from missing work due to long waits in the emergency room. Focus on reducing churn between public health care programs. AHCCCS found that in a two-year period, almost 80,000 children moved between one and eight times in between Medicaid and KidsCare, while just over 16,000 remained on one of the two programs for the entire two-year period. This type of churn increases cost by adding tremendous administrative expenses and disrupting the continuity of care for children, which can lead to missed preventative visits, untreated conditions and other high-cost problems. Arizona should focus on streamlining administration to reduce this churn. Since we know AHCCCS and KidsCare work, Arizona should focus on continued improvements. 11

Methodology: This report relies primarily on data compiled by the Economic Policy Institute (EPI) this data includes the CPS-ORG data from the US Census Bureau as well as the Current Employment Statistics from the Bureau of Labor Statistics. Findings are adjusted for inflation and reported in the dollar value for the final year of analysis (usually 2007), unless otherwise noted. Income refers to all sources of money including wages, salaries, income transfers, interest and dividends. Wages refer to hourly pay rates from a job. The median is the mid-point half of workers earn more than the median wage, half earn less. Medians are more accurate than averages, which can be skewed upwards by very high earners. Acknowledgements: Children s Action Alliance did analysis for and wrote this report. The Economic Policy Institute (EPI) provided the framework, support for printing and most of the data. Thanks to EPI for data assistance. Generous operational support for Children s Action Alliance comes from the Annie E. Casey Foundation, the Ford Foundation and SEIU. For more information about Children s Action Alliance, please call (602) 266-0707 or visit AZChildren.org. Poverty Definition: Following the Office of Management and Budget s (OMB) Statistical Policy Directive 14, the Census Bureau uses a set of money income thresholds that vary by family size and composition to determine who is in poverty. If a family s total income is less than the family s threshold, then that family and every individual in it is considered in poverty. The official poverty thresholds do not vary geographically, but they are updated for inflation using Consumer Price Index (CPI-U). The official poverty definition uses money income before taxes and does not include capital gains or noncash benefits (such as public housing, Medicaid, and food stamps). As defined by the Office of Management and Budget and updated for inflation using the Consumer Price Index, the weighted average poverty threshold for a family of four in 2007 was $21,203; for a family of three, $16,530; for a family of two, $13,540; and for unrelated individuals, $10,590. 4001 North 3rd Street, Suite 160 Phoenix, Arizona 85012 Main (602) 266-0707 Fax (602) 263-8792 www.azchildren.org Children s Action Alliance 4001 N. 3rd Street, Ste. 160 Phoenix, AZ 85012 Return Service Requested Non-Profit Org. U.S. Postage PAID Phoenix, Arizona Permit No 1751