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Press Release · July 15, 1996

The Distribution Of Income In California

SAN FRANCISCO, California, July 15, 1996–While increasing income inequality has been a focus of growing national attention and concern, a new study shows that, over the past seven years, the income gap has expanded more rapidly in California than anywhere else in the nation.

The most comprehensive picture ever assembled of income distribution in California paints a stark portrait of workers and families at all levels losing ground to the rest of the nation, with the brunt of the loss being borne by the Golden State’s poorest citizens.

Income grew more slowly at all levels in California, but while California’s rich grew richer, a study released today by the Public Policy Institute of California (PPIC) says a significant factor in the growing inequality among Californians and the state’s steady decline relative to the rest of the nation is a long, steep earnings slide among low-income and poor Californians.

As a result, the gap between the rich and the poor has grown faster in California than in the nation as a whole. In 1969, 20 states had higher household income and male earnings inequality than California. By 1989, only five states had higher household income inequality, and only two states had higher male earnings inequality than California.

The study, “The Distribution of Income in California,” was carried out by PPIC researchers Deborah Reed, Melissa Glenn Haber, and Laura Mameesh. Throughout the period studied, California male workers, from the median downward, saw their position steadily eroded. The median California male in 1967 earned $31,252 in real 1994 dollars. By 1994, median earnings had dropped 20 percent to $25,000.

The earnings of some lower-income males plunged 40 percent, from $17,316 in real 1994 dollars in 1967 to $10,400 in 1994. Meanwhile, the earnings of some well-off male workers grew 13 percent, from $44,345 to $50,000. As a result, the earnings gap between low-income and upper-income workers nearly doubled.

Male earnings inequality, by one measure which captures the entire distribution, grew 41 percent from 1967 to 1994.

Much of the growth in the gap between California and the rest of the nation occurred during the recession of 1990-94. After mirroring national trends from the late 1960s through most of the 1980s, income inequality began to widen more rapidly in California in the late 1980s. With the recent recession, that gap became a chasm.

Using five measures of inequality and 26 measures of income, the study analyzes income distributions for households and individual wage earners, and by almost every measure of income Californians have fared worse than the rest of the nation–and the poorest Californians have suffered the worst of all. Throughout this period, slow growth in annual earnings and hourly wages among more highly paid male workers was accompanied by a substantial decline among low-income male wage earners.

During the two decades between the business cycle peaks of 1969 and 1989, household income for the rich (those in the top tenth percentile) grew 42 percent in the nation and 31 percent in the state. During that same period, the poor saw their income rise seven percent nationally while it plunged seven percent in California. By 1994, more Californians were living below the federal poverty line than in the late 1960s.

In both California and the nation, income inequality has increased sharply during periods of recession when the incomes of the poor and the lower middle class have fallen substantially. But unlike low-income workers and households in the rest of the nation, these Californians have not been able to regain as much lost ground when the economy recovers.

It is not yet clear whether this will hold true for the current recovery. Nor is it clear what lies behind the growing income gap in California. Research on similar trends at the national level suggests a combination of factors such as technological change, international trade, immigration, the decline of unions, and marriage patterns. Future reports will examine the forces behind the growth in inequality in California. Deborah Reed, lead author of the study, said that “regardless of the reasons for California’s growing income inequality, the decline in income for the poor and lower middle-class is cause for real concern.”

This is the first report of the Public Policy Institute of California, which was created by a generous endowment from William R. Hewlett in 1994. The Public Policy Institute of California is a private, non-profit organization dedicated to independent, nonpartisan research on economic, social, and political issues that affect the lives of Californians. The President of the Institute is David W. Lyon.

The Institute currently has a staff of more than 20 full-time researchers working on subjects such as the well-being of the California population, the role of redevelopment agencies in economic development, and the emergence of special districts in the aftermath of Proposition 13.

Subsequent reports will focus on estimates of the undocumented immigrant population of California, the role of return migration to Mexico, and the changing public revenue burden on state residents.