Did The Pandemic Create More Income Inequality in California?

Recessions in California tend to widen the gap between rich and poor. The sharp pandemic downturn of 2020 followed this pattern with low-income workers suffering the most. But unprecedented government relief kept millions from falling into poverty, and demand for labor boosted wages when businesses reopened.

Now with federal and state stimulus payments gone, and the recovery still underway, researchers are combing through employment statistics, as well as large-scale survey data, asking whether the pandemic resulted in a deepening of California’s divide. Three out of the last four recessions — excluding the bursting of the internet stock bubble — increased income inequality in California, the Public Policy Institute of California said.

In coming months the institute expects to have its own inequality measure updated with 2020 data. Many Californians already see economic inequality as a facet of life here, with 69% of residents believing the gap between the haves and have-nots is widening, a November poll by the PPIC found.

“The challenge is that the surveys had a difficult time sampling low-income individuals and households during the pandemic,” Sarah Bohn, a researcher who studies the issue for the PPIC, wrote in an email. “So even though the survey data is available, we are doing extra work to validate the income inequality statistics we typically would have in hand by now.”

‘Further exacerbating inequality’

There are other signs the 2020 recession may have deepened the economic divide, said Somjita Mitra, chief economist for the state Department of Finance. The largest contributor to 2020 state personal income was from government transfers, or essentially stimulus payments. And increases in revenue from high-income earners was enough to offset losses from low-income earners.

“High-income earners are doing exceptionally well, further exacerbating inequality in the state,” she said.

The answer to the inequality question may help shape Sacramento policymaking after a unique recession in which lockdowns resulted in huge job losses, economic stimulus checks buoyed worker paychecks, taxes on capital gains from surging stock market filled state coffers and the rise of remote work reshaped both the state housing market and its economy.

While federal aid may be expiring, Gov. Gavin Newsom said in January that he planned to use the billions of unanticipated tax dollars to help struggling California families. Newsom said he has not ruled out measures such as state-funded stimulus checks like the ones that went to low- and middle-income families last year. Fellow Democrats who lead the Legislature are interested in another Golden State Stimulus, though they have doubts about Newsom’s proposed gas tax “holiday.” Newsom and legislators have already restored paid sick leave for COVID, though workers at smaller businesses are excluded.

In his spending plan, the Democratic governor presented several policies aimed at closing the economic divide, including universal healthcare that includes coverage for the state’s undocumented population, healthcare subsidies for the middle class, expanding paid family leave, establishing a tax credit for families with young children, universal no-cost meals at schools and more money to house the state’s homeless. The state last year also funded a guaranteed-income program, with a $35 million pool to support current or new pilot programs.

California has long struggled with poverty, exacerbated by some of the nation’s highest housing and gasoline costs, though there is evidence progress was notched during the pandemic thanks to government aid. The state had the highest rate of poverty at 15.4%, as measured by the Census Bureau’s supplemental poverty measure, which accounts for housing and transportation costs, as well as government spending and other factors.

Low-income jobs lost during pandemic

From a jobs perspective, low-wage workers bore the brunt of the pandemic recession, the shortest on record. And while low-wage workers are now in high demand, they still have the most ground to make up.

Mitra, of the state finance department, said that before the pandemic, the bulk of the jobs created paid about $20,000 a year, or less, resulting in people needing to work more than one job, or being underemployed. A study last year by the United Ways of California estimated 3.5 million California families didn’t make enough to meet basic needs.

“We were already really seeing a lot of inequality in this state,” she said. “When the pandemic hit, those jobs were the first ones to go.”

There are signs low-wage industries in the state are undergoing important changes. Low-wage jobs such as office administration, security and janitorial services have been slow to recover, likely pushing workers into other low-wage industries, according to an analysis last year by the California Policy Lab, a nonpartisan research center based at the University of California.

Low-wage workers in retail shops, hotels, restaurants, grocery stores and other such customer-facing establishments were hard hit by the pandemic. Meanwhile, the rise in home delivery has accelerated the rise of warehouse jobs, including at Amazon and other online retailers, in pockets of California’s Central Valley and Inland Empire. But there have not been enough of these jobs to make up for the losses, said Till von Wachter, an economics professor at UCLA.

“There are some sectors that have grown, such as transportation and warehousing, but they’re unlikely to have grown enough to absorb that big of a share,” von Wachter said. “They’re also not as ubiquitous as some of these other sectors; if you’re in San Bernardino, that’s a really important industry, but not, say, elsewhere in LA County.”

Inflation, housing hit poor the hardest

A spike in energy prices due to the Ukraine crisis is expected to harm the U.S. economy. Sharp rises in inflation tend to hit poorer residents the hardest, and there is some initial evidence that this is playing out in California.

About 2.6 million California households were participating in the state’s CalFresh program, which provides food benefits to individuals and families with low-incomes. That’s about the same level as the most recent peak in June 2020.

“Even if people are working again, or more people are working, the cost of food is outpacing their incomes,” said Jacob Hibel, co-director of the Center for Poverty & Inequality Research at UC Davis. “Just having a job is not enough to guarantee that you have enough food to feed your family.”

And with housing prices skyrocketing last year, some people are now being cut out of a traditional route to the middle class, which is owning a home, experts said. Housing affordability, as measured by the number of Californians who could afford a median-priced, single-family home, hit 23% in the second quarter of 2021, according to the California Association of Realtors. That was the lowest point since prices were approaching their highs during the last bubble, in 2007, when 11% of Californians could own a home. That measure had risen slightly, to 25%, by the end of last year, according to the association.

High-income workers, homeowners and people who earn investment income have, on the whole, seen their wealth increase over the last nearly two years, experts noted, likely raising wealth inequality in California. Researchers noted in interviews that the pandemic may have increased inequality in other key ways. Disadvantaged children, for instance, fell further behind academically, widening the achievement gap.

“When you see those kinds of impacts, they can really lock in inequality,” said Hibel, of UC Davis. “It tends to take young people who are either in poverty – or who are experiencing inequalities – and just make it much, much less likely that they’ll be able to climb out of that social stratum when they reach adulthood.”

Alejandro Lazo is a reporter with CalMatters. This article is part of the California Divide project, a collaboration among newsrooms examining income inequality and economic survival in California.

 

16 Comments

  1. Wasn’t the income gap closing for several years during the last administration? I think it was, particularly for the less advantaged. I wonder what changed over the last year or so????

  2. How is this for a headline:

    “Did the Biden Administration’s Attack on the US Energy Sector Create More Income Inequality?”

    Remember that starting within the first few months of the reign of Biden’s sorority sisters despots (male, female and otherwise) we were fed a monthly dose of escalating nonsense:

    “Inflation is still within the target range”
    “Inflation is up slightly but manageable”
    “The inflation we are seeing is transitory”
    “The inflation we are seeing is not transitory but will come down beginning in 2022”
    “PUTIN DID IT!”
    “PUTIN DID IT!”
    “PUTIN DID IT!”

    And now the Democrats are saying to themselves, “We are going to get our collective arses kicked in the mid-terms. Quick, find more bogy men/women/non-binary, etc., etc. to blame this on. What about Reagan? What about Bush? Nah, just stay with the Trump and Russian collusion story line.”

  3. Elitist Gov Gavin New(TAX)som is to blame – with his ‘Rules for Thee but Not for Me’ attitudes,
    a product of Getty Oil Empire patronage.

    For 2 years, Newsom and his Band of Highly Paid Bureaucrats put the Boot on the Neck of Small Business and your referenced “Low-Wage Workers”

    “…Newsom has unilaterally Determined whether people are allowed to make a living or not.”

    “In CA, nearly 40,000 small businesses had closed by Sept 2020,
    according to data analyzed by the New York Times.”
    “The businesses hit hardest by state & county stay-at-home orders (were) small businesses…”

    Besides breaking his own overbearing rules,
    Newsom favored his rich friends with GRIFT Gifts:

    The “French Laundry Restaurant Where Newsom Dined Received Over $2.4 Million in PPP COVID Loans”
    This was 17x MORE than what the Average Bay Area restaurant received from the PPP.

    Maybe these so-called reporters can look into the Income Inequality in CA Government & Agency Pay?
    For over 2 years, and even now, many government employees and bureaucrats are getting full pay while claiming the “Covid” work-from-home work productivity deduction.

  4. “Did The Pandemic Create More Income Inequality in California?”

    This question shouldn’t even be asked. Everyone except the rich know that the pandemic was just an excuse to further redistribute wealth to the already wealthy. All the politicians and their appointees and working groups, the media, medical insurers, pharmaceutical companies, PPE companies, etc. made out like bandits based on fear and authoritarian measures by the wealthy government criminals. All those corrupt individuals running for office are doing so for one thing: money. I’m really looking forward to the day these politicians, nonelected government officials, and pharmaceutical companies are charged for their lies and corruption during the pandemic.

  5. They are still forcing kids to wear masks in Alum Rock School District, knowing that masks are terrible barriers for language development, and Alum Rock has the highest percentage of ESL students in the City. Those kids are being left behind – and have been for many years, as school districts block school choice in those areas. This is another example of, not white supremacy harming poor communities, but the leaders themselves, within those communities, making terrible decisions. We see it in San Jose, Oakland, San Francisco and LA – where poor communities have been impacted the most by progressive politicians who claim to have the “solutions,” but no one ever questions why in such a progressive area, the policies and actions of the “leaders” harm those communities as problems just grow in scope.

  6. Finally Steven has it on the topic that he knows something about, effluent💩.

    It would be worthwhile for readers to go back into January and February of the San Jose spotlight and look at his predictions at that time. All failed predictions.

  7. Quit crying…There will always be ‘Income Inequality’…Get-off your lazy butts and create ‘something’ so you too can be rich.
    David S. Wall

  8. @HB, Which Jan & Feb?, last year he had to be directed to a wiki how-to for instructions to change from All Caps Lock.
    SJI keeps tabs on BenZ, and occasionally deletes his repetitive posts –
    this has become the ‘BZ of Covid’ – just much much more verbose –
    repeatedly posting the same ‘half-truth’ information, over and over,
    on half a dozen articles that contain his ‘trigger’ word.

  9. “Did The Pandemic Create More Income Inequality in California?”

    Of course, that is exactly the expected and intentional result from closing down all the stores, restaurants, theaters, hair and nail salons, etc. Did anyone expect a different result from this heartless and fruitless attempt at slowing the spread of a virus that everyone caught anyway, and our hospitals were never even close to being over capacity? I was foolish to think that all the health directors, governors and city/county leaders were out to get Trump. I realized later they were out to get all of us.

  10. Part I: Radical Wealth Inequality is a Primordial American Condition

    Recessions do widen income and wealth gaps between rich and poor in California and everywhere in the U.S. But if we really want to understand the character of our country, and the social system in which we live, a longer view reveals much more than a focus on the past 2-3 years. We have a 400-year history that connects Jamestown and Plymouth to California. There is ample documentary evidence of who settled in the colonies, who was dragged to the colonies in chains, who arrived as indentured servants, who was displaced, dispossessed and subject to forced labor, who immigrated and labored for starvation wages across four centuries and a very large geography. There is also sufficient amounts of evidence regarding what was taken from natives, how it was used, what and how much slaves produced and where, what was produced by coerced and badly paid natives and immigrants, who owned or controlled the various production processes, who accumulated the surpluses from those processes and who ultimately inherited those surpluses over time.

    As it turns out, the U.S. Federal Reserve (the U.S. central bank or Fed) has for decades tracked the cumulative monetized value of inter-generational transfers of wealth, the historically accumulated remnants of property in the form of slaves, land, real estate, businesses and financial instruments representing ownership of assets or debt. The Fed has also provided detailed accounts of the relative distribution of that wealth among the population as well as details of the distribution by income levels, by type of assets, by education level, by generation (Silent, Boomer, GenX, Millenial) and by race (see https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/#quarter:129;series:Net%20worth;demographic:networth;population:all;units:shares). While the data presented only goes back to 1989, wealth is a cumulative measure expressing the value of monetized assets generated, aggregated and bequeathed from one generation to the next over extended periods of time. Thus, the Fed’s data captures the value of whatever is left of the assets that have been inherited and augmented by private households in what is the United States for more than 400 years.

    By end-2021, the wealthier half of the population owned 97.4% of the net worth (wealth) the Fed was able to account for while the poorer half of the population owned about 2.6% of said wealth. The wealthiest 10% of households alone owned about 70% of that wealth with the top 1% owning just under one-third of the total. A casual review of the data in the sourced Fed page also indicates that, since 1989 at least, wealth has been more unequally concentrated.

    From the perspective of wealth distribution, little has changed over the course of U.S. history. For example, one-tenth of Boston taxpayers owned about two-thirds of all taxable wealth in the 1760s. In the heavily slave colonies, the concentrations were dramatically more pronounced as a large segment of the population were themselves counted as owned assets rather than as people (http://www.historyisaweapon.com/defcon1/zinntyr4.html; https://www.aeaweb.org/research/southern-wealth-persistence-civil-war-leah-boustan). The radical inequality in income and wealth distribution—not to mention deep racial, ethnic and gender distinctions and discrimination—that prevailed in the British colonial period were systematically reproduced and elaborated in each generation since, despite the so-called “free republic” established by the U.S. founders.

    The present condition is the direct descendant of the settler colonial past as produced by the inter-generational processes of marriage, birth and bequest. All wealth accumulations can be directly and indirectly traced back to the multifold coercive labor processes that produced them and to the familial connections that transfer them from one generation to the next.

  11. Looks like Putin’s Propaganda Puppets are out in force now that Countries that value Freedom are fighting against the largest of odds and holding their own.

    On the SJSpotlight twitter feed Putin Propaganda videos and comments are being posted,
    and it looks like Econolast is trying to indoctrinate with some Revisionist History and attempt to further marxist ideals in the SJInside.

  12. As they say, patriotism is the last refuge of scoundrels and anti-communism is the last hideout of nihilist libertarians, especially those with a schizoid online presence. A marijuana-smoking comedian in a Pasadena garage can provide a better response to CA Patriot and his ilk than I ever could.

    Perhaps the last refuge of the sane is comedy (https://www.youtube.com/watch?v=1humfpe1K4w).

  13. LOL, Talk about ‘schizoid’ – Econolast was so upset about being directly called out that he had to shift into his ‘alter ego’.

    The troubled marxist can always go live in one of his “Utopian” countries that is more to his ideological ideals –
    Venezuela and Cuba are calling…
    it may even help you maintain your diet & health?

    ——– “Venezuelans lose average of 19lb in weight due to nationwide food shortages..” —–

    The Venezuelans are majorly anti-Obesity – they chose a government that helped them change
    their dietary habits – and were able to lose an average of 20 lbs. per person.

    “The economic crisis in Venezuela is so severe that 75% of the country’s population has lost an average of 19 pounds in weight”

    “A third of the nation’s citizens are now only eating 2 or fewer meals per day,
    as soaring inflation creates food shortages.”

    Lol, you tube?
    So Sad, so Very Sad.
    The comedy is in your remarks.

  14. CA Patriot,

    There is no tax deduction at the Federal (for sure) or State level for any State that I looked at (CA, NY) for employees. There may be applicable ones for the self-employed but that would exclude government employees just like any other employee.

  15. Part II: Social Safety Nets Catch Falling Household Finances and Other Objects

    The extraordinary and unprecedented fiscal and monetary measures wisely adopted by the Trump and Biden administrations in the wake of the COVID-19 pandemic during 2020-2021 resulted in emergency infusions to businesses and households that summed to well in excess of $5 trillion in income/stimulus. The massive interventions made the steepest recession in U.S. history also the shortest recession in U.S. history, staving off an economic and social catastrophe. The fiscal measures amounted to a greatly expanded social safety that supported the households of the poor and the unemployed in particular. Components of the safety net included the economic impact payments; expanded unemployment insurance eligibility, increased payment levels and extended durations; expanded child income tax credits; extended and expanded Medicaid coverage; food assistance; housing assistance and eviction moratoria; and emergency cash assistance. In addition to supporting the income of hundreds of millions, the interventions were powerful enough to reduce the poverty head count by more than one-third, an unprecedented feat in such a short period of time (https://www.investopedia.com/government-stimulus-efforts-to-fight-the-covid-19-crisis-4799723; https://www.cbpp.org/research/poverty-and-inequality/robust-covid-relief-achieved-historic-gains-against-poverty-and).

    In addition to averting absolute deprivation for the working class and the poor, a main effect of the fiscal and monetary policy responses was the rapid expansion in easily-accessible liquidity (credit) that wealthy actors and others used in ways that supercharged the prices of the assets that are the building blocks of wealth. The Federal Reserve estimates that household net worth (wealth) in the U.S. grew some 30% from about $110 trillion at end-2019, the last full year before the pandemic emerged, to $142 trillion at end-2021. The wealthiest 1% of households in this interval increased their share of total wealth ownership from 30.7% to 32.2%, while the share of the wealthiest 10% was largely unchanged at just under 70% in both periods, suggesting wealth accrual was disproportionately captured by the very highest ranks of the rich. It is notable, however, that the lowest half of households’ share of net worth nearly doubled from an abysmally low 1.8% to a ridiculously low 3.4% of the total.

    An analysis of the value of specific assets reveals that increased stock prices accounted for 64% of the $12 trillion increment in household wealth for the richest 1%; rising value of non-corporate business assets contributed about 20%; and “other assets,” defined as money market funds, savings accounts, checking accounts and personal debt, accounted for about 10% of the addition to their wealth. Among households at the bottom half of the upside-down wealth pyramid, 58% of the $1.8 trillion increase in their total wealth was due to real estate asset inflation. Another 20% was accounted for by the increased purchases of consumer durable assets like cars, major household appliances, sporting goods, household electronics, etc. followed by “other assets” (checking and savings accounts and the like) which were responsible for 10% of wealth growth. (The forgoing data is taken from downloadable spreadsheets available at https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/. Also, see https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2021-economic-commentaries/ec-202116-durable-goods-spending-during-covid19-pandemic.aspx).

    What the data suggest is that, on the national level and on average, the wealthiest captured the lion’s share of added net worth during two years of pandemic, while the authorities’ outsized efforts to avert disaster buoyed the bottom rungs of the wealth ladder. This allowed those at or below the 50th percentile to retain and marginally augment wealth holdings in general although the character of asset appreciation in the southland was quite different than for those living near the mountain top. In the aggregate and at the national level, the relatively less well-off, due to the temporarily strengthened social safety net, did not fall off a financial cliff in great numbers. In California, however, the picture is somewhat different.

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