The revelation that California’s $2.5 trillion economy is now the world’s sixth largest is a source of tub-thumping pride for the state’s politicians.
However, as economists explore California’s seemingly powerful emergence from the Great Recession over the last half-decade, they have discovered some troubling trends.
The recovery is geographically and sociologically uneven and widens the “income inequality” gap between those in upper and lower income brackets.
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“Pre-tax cash incomes in California have been diverging for decades, and economic cycles have reinforced the longer-term trend,” a new study by the Public Policy Institute of California concludes.
“Top incomes are 40 percent higher than they were in 1980, while middle incomes are only 5 percent higher and low incomes are 19 percent lower.”
Taxes, which fall most heavily on those in the upper brackets, and “safety net” programs that aid those at the bottom of the income scale narrow the income gap somewhat, the PPIC study found, but California still has one of the nation’s highest levels of disparity.
The PPIC data underscore the decline of California’s once-dominant industrial economy, a rich source of middle-income jobs, and the emergence of a post-industrial economy, rooted in trade, services, technology and communications, that widens the gap.
“At the low end, accommodation and food service jobs have grown 23 percent since the low point of the downturn, but these jobs offer only around $16 per hour, on average,” PPIC says. “Job growth in the highly skilled professional service sector … has also been strong; wages in this sector are around $36 per hour.”
“Across the state, income inequality is at least 9.9 percent higher today than it was in 2007, just before the recession,” PPIC added.
As the income gap has widened, it’s left California with a shockingly high rate of poverty, when its high cost of living, particularly for housing, is included.
The Census Bureau says that by its alternate method of calculating poverty rates, one that focuses on the cost of living as well as income, California’s is by far the highest with nearly a quarter of the state’s 39 million residents impoverished.
PPIC used a slightly different method and came up with a poverty rate just slightly lower.
Meanwhile, a third of the state’s residents are now enrolled in Medi-Cal, the state-federal health program for the poor, and about 60 percent of the state’s 6 million K-12 students are eligible for free or reduced-price lunches due to their low family incomes.
Income disparity and poverty have been major issues for Gov. Jerry Brown and legislators during the biennial session that ends next month, with Brown, who preaches fiscal restraint, somewhat defensive as he’s pressured by his fellow Democrats to do more for the poor.
Brown’s revised budget in May listed “major poverty-focused budget actions since 2012” totaling $19.5 billion a year in additional spending, more than half of which is extra money for schools to spend on poor and/or “English-learner” students to raise their achievement levels.
Brown’s also signed boosts in the minimum wage, an “earned income tax credit” for the working poor and, recently, legislation that ends the “family maximum” rule in welfare grants.
All, as the PPIC study implies, narrow the income gap somewhat but very likely not enough to offset the powerful – and global – economic forces that drive California’s inexorable evolution into a two-tier society.