Friday, December 9, 2011

California: Where All the Middle Incomes are Below Average

We tend to write a lot about the minutae of politics in the Golden State — its broken public finances, its underfunded pensions, its hopeless hostility to private enterprise, etc. But it's important to remember that California's struggles have a human face. The high taxes, the high cost of living, and the regulations on business all carry the predictable consequence of making life more difficult for average Californians, whether you're talking about finding work, paying bills, or saving for the future. And apparently the Public Policy Institute of California agrees with us.

The Contra Costa Times has the story: according to the PPIC, the proportion of Californians characterized as "middle class" slipped under 50% last year, marking the first time in decades that the middle class is not a majority in the state. The analysis uses an inflation-adjusted national bracket to define the middle class as anyone with annual incomes between $44,000 and $155,000. The Occupy protesters are likely to paint this as evidence that the rich are getting richer, but the data suggest that the lower-income middle class has gotten poorer at a far greater rate than the upper-income middle class has gotten richer. This is the predictable result of the collapse in housing, both in home values and in employment in related industries. In the current recession, the PPIC found California employers slashing hours and cutting jobs rather than lowering salaries; in other words, wages have stayed fairly flat, and the dropping incomes are largely a product of unemployment and underemployment.

Thoughtful observers, of course, will find none of this surprising, because they realize that the erosion of the middle class didn't begin in 2007. For that, you have to look back to the early 1990s and the end of the Cold War, when the state's aerospace economy vanished almost overnight and took tens of thousands of white- and blue-collar jobs with it. Rising home values allowed California's middle class some borrowed time, as their paper equity gave them the illusion of wealth, but this was never sustainable. Unfortunately, no one in Sacramento realizes this; the political and media classes in California seem convinced that the state's troubles are little more than a prolonged bump in the road, and have no relation to its high taxes or poor business climate. Yet unless you really believe that the federal government is about to shower the Golden State with funds on par with the Cold War military build-up, you have to view our political leaders as hopelessly out of touch. And you have to be pessimistic about the future of the middle class here.


  1. Wages staying flat are a consequence of much government policy, which has dictated since the Hoover administration, at least, that they are simply not to be reduced in hard times. Instead, the "better" solution is that people should lose their jobs altogether.