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Income Inequality and the Safety Net in California

Summary

Income inequality has been growing for decades and remains higher than at any point before the Great Recession. This is true both in the United States as a whole and in California, although trends are more pronounced here. In recent years—as the economy has recovered and income polarization has continued—inequality has become a major focus of public discussion and debate, both in California and across the country. In this report, we present the latest data on the distribution of family incomes in California and look at long-term trends, factoring in the role of social safety net programs in mitigating inequality.

We find that

  • Pre-tax cash incomes in California have been diverging for decades, and economic cycles have reinforced the longer-term trend. 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.
  • Post-recession improvements in incomes have somewhat lessened income inequality, but it remains historically high.
  • In addition to reducing poverty, social safety net programs shrink income inequality substantially (by 40%).
  • Safety net programs are especially helpful to families with young children and single-parent families—but even so, incomes for these families remain relatively low.
  • On average, the majority of family resources come from work, even for very low-income families. Strengthening the employment and wages of workers today and in the future holds promise for restricting growth in inequality.

The income distribution is shaped by a wide range of factors—from individual choice to international trade. While policy cannot recalibrate inequality at will, policymakers and the public can take action to influence the factors that drive the polarization of income and/or to mitigate the consequences of that polarization. Our aim is to inform the public discussion about economic inequality and the role of policy in addressing it.

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