The following article is based on an essay written by the authors that received the 2024 Doti-Spogli Free EnterPRIZE student essay contest.
In an extra-credit research project we conducted in our econometrics class taught by Dr. Jim Doti, we studied the statewide differences in homelessness.
According to the World Population Review, in 2024, California had the highest number of homelessness estimated at 171,521. New York state, at 74,178, was a distant second. A more accurate measure of homelessness, however, is given by homelessness per capita. On that basis, California’s homelessness is 43.7 per 10,000 in state population. That’s still the highest of all 50 states, followed by Vermont at 43.1, Oregon at 42.3, Hawaii at 41.4, and New York at 37.7. The lowest is Mississippi’s 4.1 and South Carolina’s 7.0.
Our econometric analysis focused on attempting to explain these differences among states with an emphasis on why California’s homelessness ranks the highest.
In our statistical analysis, we tested the impact of a wide variety of socioeconomic variables on homelessness per capita. The three variables that we found most significant in explaining homelessness were each state’s unemployment rate, its per capita drug use by minors, and its minimum wage rate.
The resulting double logarithmic form of our equation produced elasticities that showed that a one percent increase in a state’s unemployment rate increased homelessness per capita by 0.41 percent. A one percent increase in per capita drug use by minors increased homelessness by 0.76 percent. The highest elasticity was for the minimum wage, where a one percent increase in a state’s minimum wage led to a 0.90 increase in homelessness.
These findings largely explain why California’s homelessness per capita is the highest of all 50 states. California’s unemployment rate is the highest in the nation. Its average drug use by minors is the 10th highest for all 50 states And the most damaging in terms of its impact on homelessness in California is its minimum wage that is the second highest for all states.
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The significant impact that a state’s minimum wage has on increasing homelessness is explained by the fact that those losing their jobs because of it are those least likely to find viable alternative job opportunities. As a result, they would not have an income source to afford housing.
The negative impact of homelessness resulting from higher minimum wage rates is not confined to California. We found that the 20 states that had the lowest minimum wage of $7.25 had a homeless rate of 9.4 percent. The next ten states had a homeless rate of 10.1, and the next ten had a homeless rate of 16.8. But for the ten states with the highest minimum wage rates – including California – the homeless rate was 25.9.
These empirical findings suggest that rather than California indiscriminately spending billions of dollars on the homelessness problem, a more effective strategy would be to focus on tactics that reduce its unemployment rate and teenage drug use. Even more effective would be to lower its minimum wage rate.
Faryal Ahsan and Austin Hamilton are students at Chapman University.