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Testimony

Setting the Context: The Economy, Employment and Poverty in California


By Sarah Bohn, policy fellow,
Public Policy Institute of California

Testimony to the California Senate Budget and Fiscal Review Committee - March 1, 2012

Subject: Governor痴 CalWORKs and Child Care Proposals

Our researchers regularly provide expert testimony to policymakers. When possible, we make it available on our website.


My name is Sarah Bohn, I am an economist at the Public Policy Institute of California. I知 going to discuss the impact of the Great Recession on families in California. I値l provide some basic facts and briefly discuss the implications for California going forward. Much of the data I値l discuss today comes from a report published by PPIC in December titled The Great Recession and Distribution of Income in California and coauthored by myself and Eric Schiff.

First, I値l discuss how income has changed in the past few years. Family income has declined across the spectrum, from the higher end to the lower end. But declines at the lowest end have been the steepest. The Great Recession officially spanned December 2007 to June 2009, but as you can see, the impacts on income continue well beyond. The most recent Census Bureau data we have to measure family income is for 2010, one year following the official end of the recession. Total income for the median family in California fell more than 5 percent between 2007 and 2009 (the official recession years). In the year after, it fell another 5 percent, which means that median income in California fell more than 10 percent since 2007. So as of 2010, the median family in the state received $61,000 in income for a family of four, about the same as the median in 1980. At the low end of the spectrum, family income fell more. At the 10th percentile, family income fell more than 21 percent in total. At the high end, incomes also fell, but by less. At the 90th percentile of income fell 5 percent. From the top to the bottom, California family income suffered.

This is not too surprising given the state of our economy, and particularly the labor market. As you know, unemployment末and the duration of unemployment末reached record highs during the Great Recession. We have seen some turnaround in the labor market; the downward trend seems to have reversed and we are seeing month-to-month improvements in unemployment. For example, December 2011 unemployment in California is 11.1 percent, down from peak of 12.5 percent in the fall of 2010. Job growth has also returned to positive in 2011 after two years of net job loss. We still face a jobs gap in California of at least 1.5 million jobs (to make up for jobs lost, as well as incorporate new labor market entrants) and an estimated 5 to 12 years to close it (under varying scenarios, more or less optimistic).1

However, these positive trends in the labor market are not likely shared across the spectrum. Labor market downturns have been most severe for the least educated and lowest income workers. Whereas we see unemployment turning around for high-income and upper-middle-income workers, there is no such turnaround (thru 2011) for low- and lower middle-income workers. Without a reversal of this trend, we are unlikely to see incomes picking back up for these families at the low end of the distribution. I壇 like to note that we have also not seen clear improvement in underemployment indicators末working part time or fewer hours末for low- and low-middle-income workers.

Now I知 going to talk about the overall impact of these changes. The gap between upper- and lower-income families is now wider than ever. The gap is about twice what it was in 1980. And it is a bit worse in California compared to the rest of the country. Further, the percentage of middle-income families is shrinking, to a new low of just below a majority in 2010. In fact, by 2010 there is only a small difference in the proportion who are middle income and those who are low income (after adjusting for California痴 cost of living). We are at new extremes in the distribution of income, due to the Great Recession as well as underlying, long-term transitions in our economy, which have favored high-income and skilled workers.

What can we expect in the future? Through 2010, there is no major evidence of recovery across the income distribution. But if previous patterns of recovery persist, we can expect low incomes to recover more slowly than those at the high end. In fact, low-income families in California have never recovered fully from the boom-bust cycles over the past 30 years and are earning in 2010 about 10-20 percent less than they were in 1980. Whereas high-income families take hits in recessions末historically末but recover and then grow, so that even following this recession they are earning 20-30 percent more than they were in 1980. So, the disparity between high and low incomes is likely to persist.

In the short term, job creation and overall economic growth will help boost family income. But the extremes we池e at in the distribution of income also raise longer-term questions about economic opportunity in California, and whether it is shared across the income distribution. And this is where I believe policy has an important role to play, in creating economic opportunity, so that middle- and low-income families do not get left behind.


1Brookings Institute projections, http://www.brookings.edu/opinions/2011/0902_jobs_greenstone_looney.aspx

Related Publications

The Great Recession and Distribution of Income in California

Poverty in California

Related Policy Areas

Economy
Population

Other Work By

Sarah Bohn