While Upward Mobility and Wages Decline, the Importance of Middle Skill Credentials Grows

Earlier this week, the annual California Economic Summit convened public, private, and civic leaders in Sacramento to discuss the state’s economic challenges and path forward to achieve sustained prosperity.  Despite steady job growth, concerns about rising income inequality and high levels of poverty were key focus points on the agenda.

To quantify the issue of upward mobility specifically, Raj Chetty, Professor of Economics at Stanford University, presented groundbreaking research at the summit.  His analysis of millions of tax records over several decades revealed that the chances a person will enjoy a higher standard of living than his or her parents has declined significantly in America.  For example, a child born into an average American household in 1940 had a 92% chance of earning more than his or her parents.  By comparison, an individual born in 1980, or today’s 36 year-olds, have only a 50% chance of out-earning their parents.

Professor Chetty further quantified the prospects for achieving the American Dream, as defined as the chance a child born to parents in the bottom fifth of the income distribution will reach the top fifth.  In the US, that probability stands at 7.5%, compared to 13.5% in Canada where the chances are almost double.   While differences across countries have been the focus of policy discussions, Chetty demonstrated that upward mobility varies even more within America.  Depending on the region in question, the chances of achieving the American dream can be almost triple the average, or cut in half.  By studying 7 million families that moved between areas within the US, Chetty’s research team found that most of the variation in upward mobility across areas is caused by differences in childhood environments, such as how segregated the region is and the overall quality of schools.

How does LA County compare to the rest of the country?  The chances of achieving the American dream are better than average, ranging between 9 to 10% for the region.  The more critical issue here is the overall decline of average income, a drop that will continue if current trends hold.  LAEDC reported earlier this month at the Southern California Association of Governments (SCAG) economic summit that while median household incomes have increased from $35k in 1990 to $59K in 2015, inflation-adjusted median household incomes are 6% lower than they were 25 years ago.  Furthermore, almost two-thirds of projected job openings over the next 5 years will be in occupations that require a high school diploma or less, paying less than the County’s median annual wage of $39K.

A critical part of the strategy to reverse these trends is to produce more job candidates with 4-year and 2-year degrees.  Of particular focus at the California Economic Summit is the need for more workers with middle-skilled credentials in high wage, high demand industries.   To that end, the November 20th Weekly Report to the Coalition detailed the significant state investments in Career and Technical Education in recent years, as well as the factors, such as academic readiness and student interest in middle skill positions, that will influence their ultimate success.

In light of current income trends in LA, an additional factor of note is the overall affordability of postsecondary education.  To address this financial barrier, initiatives such as the LA College Promise will ensure all students enrolled full-time in community college will receive their first year free, starting in 2017.  However, the cost of books and tools for CTE programs can rival and even surpass the cost of tuition, ranging from $400 to $3,000.  These costs are in addition to standard living expenses such as housing, which also continue to rise in the region.

To address the significant cost of books and tools, we are exploring innovative approaches to removing this barrier for programs leading to high wage, high growth middle skill occupations.  We look forward to sharing the results of our work in the new year.