SAN FRANCISCO, December 7, 2011—In the Great Recession and its aftermath, the percentage of Californians living in middle-income families fell to a new low of less than 50 percent, according to a report released today by the Public Policy Institute of California (PPIC).
By 2010, 47.9 percent of Californians lived in families considered middle income, after adjusting for the state’s cost of living. These are families with incomes between $44,000 and $155,000. In 1980, 60 percent of California families were middle income.
Family incomes declined across the spectrum between 2007 and 2009—the official years of the recession—and continued to fall in 2010. Median family income declined more than 5 percent in the recession years and another 5 percent in 2010.
Declines were steeper among lower-income families. At the lowest income level—the 10th percentile—incomes fell more than 21 percent between 2007 and 2010. Families at the 90th percentile—those earning more than 90 percent of the population—saw their incomes fall 5 percent during the same period. In 2010, California families at the upper end of the spectrum had higher incomes than those in the rest of the nation, while families at the lower end had incomes that were lower. As a result, the gap between California’s upper- and lower-income families—which has been larger than in the rest of the nation for decades—grew twice as wide as it was in 1980. High-income families earn nearly $12 for every $1 earned by the lowest income families.
The Great Recession brought higher rates of unemployment than previous downturns, and jobless Californians have spent a longer time looking for work. This stubbornly high unemployment largely explains the decline in family income. However, even in working families income fell for those in the middle- and lower-income groups. Underemployment—a decline in the number of hours or weeks worked—appears to have driven this income drop, rather than a decline in wages.
“Unemployment and underemployment are the hallmarks of the Great Recession,” says Sarah Bohn, a PPIC policy fellow, who co-authored the report with Eric Schiff, a former policy researcher at PPIC. “This suggests that policies that create jobs and promote full-time employment—rather than those that target wage rates—are more likely to be effective in raising family income to pre-recession levels.”
Across California’s demographic groups and regions, the Great Recession tended to amplify differences that existed before. Black and Hispanic families, which already had lower median incomes, experienced the largest declines. Median income for Asian families declined the least. Although the recession affected workers at all educational levels, families with more highly educated workers were buffered somewhat from the downturn. College-educated workers had the lowest unemployment rates and the highest median family income.
In most regions of the state, median family income declined between 2007 and 2010, with the largest declines in the Central Coast, at 18 percent, followed by the Sacramento and San Joaquin regions, at 16 percent each. Only in San Diego County did median family income increase. In the Inland Empire, there was essentially no change in median family income during the recession years, but a decline of about 10 percent in 2010.
It is unclear whether incomes will continue to decline or begin to rebound in the near future. However, if previous post-recession patterns repeat themselves, it is likely that lower-income families will recover much more slowly than those at the high end, potentially worsening income inequality that is already at a record high. The most important factor driving this income gap is education. The report concludes that looking ahead, California may need to find innovative ways to promote opportunity through education so that middle- and lower-income families are not left further behind.
The report is titled The Great Recession and Distribution of Income in California.
PPIC is dedicated to informing and improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett. As a private operating foundation, PPIC does not take or support positions on any ballot measure or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office.