Weekly Report – June 16, 2015 – Poverty and Lower-Income Trends in California

In light of today’s Los Angeles Times article San Bernardino: Broken City  http://graphics.latimes.com/san-bernardino/ and The New York Times article Los Angeles Confronts a Spike in Homelessness Amid Prosperity  http://goo.gl/52U5jo – I wanted to share with you some thoughts on poverty and lower-income trends in California since the late 1980’s. 

Additionally, as a follow-up to this piece I will begin a seven part series in July on ways in which government can foster economic and quality job growth. The series will attempt to highlight/reconcile economic development public policy pronouncements with their current status.

Immigration, Education and Poverty: The chart below is very helpful in understanding the correlation between immigration and poverty in California, particularly over the last 25 years. The Golden State has obviously been a magnet for immigrants since the gold rush, but it also increasingly attracted (mostly) U.S.- born migrants from other states during much of the twentieth century. This latter trend became pronounced from the beginning of World War II through the 1960s, a thirty-year stretch in which the percentage of foreign- born California residents significantly dipped due to massive American migration, especially from southeastern and midwestern states. Poverty in California was well below the national average during this period.

The percentage of foreign-born California residents began to notably grow again in the 1970s as the migration of Americans from other states began to slow. By 1990 the percentage of foreign-born residents reached a level not seen since 1910, when the percentage of those residents nationally was only 8 percent lower than in California, as opposed to 14 percent lowering in 1990. Over the last two decades the state’s percentage of foreign-born residents has plateaued, but at a rate that is higher than any decade since 1890 and with roughly the same foreign/native-born disparity between California and the U.S at the end of the nineteenth century.

The most critical socio-economic difference between foreign immigration to California (and the nation) through the first six decades of the twentieth century and since that time is that California rapidly moved into a largely post-industrial economy in the 1970s and 1980s. At the same time, immigrants to the state tended to be less educated. Being poorly educated didn’t much hinder getting a job in a factory or some ancillary position in the first six decades of the twentieth century but became a real liability in recent decades. Moreover, research has shown that even though second and third-generation children of the foreign born tend to be better educated than their parents, they – and especially Mexican Americans — still are significantly less educated than native-born whites. This lower education level is a primary factor in the persistent poverty among the immigrant/intergenerational cohort. (Highly educated immigrants from Asia have greatly exceeded immigrants from Latin America in the last five years, though the number of immigrants entering the state is small by historical standards.)

The Cold War’s End: The Genesis of the Growth in Poverty and Income Inequality: The poverty-rate chart below (left) clearly shows that the rate in California began to skyrocket in the late 1980s, rising far above the national average. The precipitous decline in defense spending at the end of the Cold War and the movement of aerospace facilities to other states triggered this rapid rise. The decline in California’s industrial base actually began ten years earlier. In Los Angeles, ten of the twelve largest non-aerospace manufacturing facilities closed between 1978 and 1982. Increased defense spending during the Reagan administration helped mask the impact of those closures. But when the rapid decline in defense spending began during 1987-88, the initial hollowing out of the state’s industrial base was soon laid bare. (Manufacturing jobs declined 32.6% further between 2000 and 2010.)

Wedged between the major economic downturn of the early 1980s and the Great Recession, the 1990-91 recession (and its shoulder years) was in many ways more severe in California than either of the other two. For example, the decrease in income from 1989-1993 for all income brackets was greater than during the other two recessions, with the exception of the upper-income brackets (>75th percentile) during the Great Recession (which for the most part have recovered quite nicely). Ultimately, the recovery from this recession (as opposed to the current modest recovery) proved strong as the “tech bubble” ballooned and the poverty rate sank and then subsequently dipped even a bit more, albeit briefly, during the labor-intensive housing bubble.

The immediate economic benefits of these bubbles notwithstanding, the trend of supplanting higher-paid manufacturing jobs with lower-paid ones began in earnest in the post-Cold War Recession ((PCWR). For example, while almost as many apparel jobs were created in Los Angeles County during 1990-91 as were lost in the aerospace industry, the median wage was $17,000 in garment work compared to $45,000 in aerospace. (Since then most of those apparel jobs have been outsourced to foreign countries, another trend that began in earnest in the 1990s.) The hit taken by lower-income workers (<25th percentile) during the PCWR, as seen in the chart on the right, was considerably greater than that experienced by those workers nationwide and especially compared to higher-income Californians. This lower-income cohort could not sustain its bubble-led recovery as it suffers most when bubbles pop and the economy tanks. Defense spending may have been a fifty year bubble, but it endured long enough to become a cornerstone of the California Dream. Predictions that the “New Economy” would provide a new cornerstone have yet to prove true.