Recent report highlights rising inequality in California

The PPIC's report is supported by recent survey evidence showing concern for inequality among California residents, and has potential to contribute to many conversations in the state

Update since Tuesday: June CPI/inflation stats were released. While we won’t know the updated numbers for the Inland Empire until August 10, Jon Lansner reported on LA/Orange County for the local papers. Los Angeles experienced the highest rate of inflation since March 1982: 8.6% year-over-year. I expect similarly high numbers for our region next month, and I plan to break down what’s driving the high rates at that time.

For this week’s special topics post (which is a staple on Fridays – Tuesdays are for the regular economic update), I wanted to write about the Public Policy Institute of California’s recent report on income inequality, which just came out this week; see here. This report uses Current Population Survey to track income growth in the state.

In the report, changes in inequality are measured as changes in the income levels required to be in a certain percentile of California households, after adjusting for inflation. For example, in 2020, in order to be in the top 5% of all households in the United States (I don’t have the specific numbers for California and the PPIC doesn’t report them), which is the 95th percentile, your household must have made at least $273,739. As that number grows relative to, say, the income needed to be at the 20th percentile of the income distribution, after correcting for changes in prices, then we infer that income inequality is growing.

It would have been nice to see actual income numbers for the percentiles, but alas, the PPIC doesn’t provide them. Also note that it’s not possible to collect these data at the regional level (say, for Southern Calfiornia specifically).

At any rate, the report finds that in California, growth in the bottom 20th percentile of household income has been about 15% since 1980. But growth in the 90th percentile of households has been about 60%. This differential growth (15% vs. 60%) means that income inequality has risen since 1980. It’s not a “rich become richer, poor become poorer” story, but it is a “widening gap” story.

Not surprisingly, the PPIC report found that the pandemic barely changed the level of inequality. In March 2020, many high-paying jobs shifted to work-from-home or were otherwise not affected by the shut down of services caused by the health-related social restrictions. This allowed incomes at the top to remain stable or even grow, as income at the bottom declined. The stimulus checks likely did little to change this fact over the long run, although there were some positive short-term effects (see here).

The report also breaks down the numbers by race/ethnicity. The whole release is very exciting and I hope other outlets can pick it up and write about it, since it feeds into so many important discussions these days, including about housing, migration, and wages.