You get additional 5% public order reduction and .5% population growth reduction in the form of squalor for every 1,000 people your city has starting from a population number I can't remember at the moment. You can't reduce squalor except by having your governor gain an architect virtue or something like it.

You can, however, counteract the effects by increasing garrison size and constructing buildings that add to law, happiness, etc. Governor's influence and V&V's concerning law, etc. also applies. What makes squalor problematic is when you are close to becoming a huge city (the last one). Your public order really drops and you need more and more troops to maintain the same garrison effect.