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Wage Inequality in California: Why the Conventional Wisdom is Wrong

01/15/2014

Fox & Hounds. Jan 15, 2014.

(This brief essay on wage inequality in our state first appeared last Friday at Zocalo Public Square.)

The wage gap between rich and poor Californians is rising to the top of the political agenda in 2014. In December, the state legislature formed a caucus to end poverty and inequality in California that will be chaired by State Senator Mark DeSaulnier. City officials in San Francisco and Los Angeles have pledged to tackle the issue. Major private foundations and thinktanks cite wage inequality as among their major priorities in the new year.

Much of the activity on wage inequality has coalesced around the same narrative. Wage inequality, the story goes, has been growing in California since the Great Recession. If left unattended, it could threaten social stability and create an underclass in California. Government on all levels has ignored this inequality. It’s time in 2014 for government to act to correct it.

Each of the main elements of this narrative is either wrong or incomplete. There’s a counter-narrative about wage inequality that better matches the reality of California.

This counter-narrative has three parts. First, wage inequality isn’t a new phenomenon. Wage inequality has been growing in California since the late 1970s. As far back as 1996, a study led by Deborah Reed of the Public Policy Institute of California warned of growing wage inequality. Since then, the gap between rich and poor has grown in California and across the nation. The Great Recession actually provided a brief respite from that widening gap—it brought significant wage losses at all levels (including among the top 1 percent). But since the recession ended in 2010, the top 10 percent of wage earners have recovered their income losses more quickly than most Californians.

What’s driven this inequality? Technological change and globalization are key factors, both of which are not easily addressed by state and local policymakers in California. State government also has limited impact on the demographic forces that worsen income inequality—the high number of single-parent households (who show up on the bottom of the wage scale), and the frequency of married couples made up of high-earning individuals (who thus combine earnings to move to the top of the scale).

Second, despite the long-term trend of income inequality, California still has considerable economic mobility. In the early 2000s, a team of researchers led by economist Michael Dardia of the SPHERE Institute tracked the wage progress of 133,000 workers in California from 1988 to 2000. More than half of the workers who started out earning the lowest 20 percent of wages advanced to a higher income bracket by 2000. This is consistent with other national studies, which show considerable movement by workers up (and down) the wage structure. Forty-five percent of workers made wage gains over a five-year period, according to a study by Isabel V. Sawhill and Daniel McMurrer of the Urban Institute. That study, which reviewed data from across the U.S., found that about 60 percent of workers moved up the wage scale over a nine-year period. There is no evidence of a growing underclass in California, or elsewhere in the U.S.

Third, California’s policymakers and influential nonprofits have been focused on wage inequality for many years, and the state government has taken considerable action as a result. The California Budget Project has been particularly strong on this subject, issuing reports on aspects of wage inequality—the job growth in lower wage industries (hospitality, security, and janitorial), and the breakdown of full-time jobs with benefits, which are being replaced by part-time and contingent work.

The state legislature has taken action to help low-wage workers, most notably this past year with a package of legislation that included a $2 increase in the state minimum wage (to $10 per hour in 2016). However, it should be noted that these measures, though important to the workers who will benefit from them, will likely have limited impact on the overall distribution of wages.

So what will work in combating wage inequality? While there is no big statewide policy answer in 2014, there are a number of modest actions we can take.

One promising approach—the building of “career ladders”—involves the efforts of industry associations and labor unions to alter the structure of jobs within industries. Over the past decade, I have been part of a group of workforce practitioners throughout the state involved in career ladders projects. We seek to create more intermediate positions that will enable lower wage workers to gain skills and income. Or to put it another way: We need to create more rungs on the “career ladder.”

Most California employers maintain an informal form of career advancement, by increasing pay as workers gain time on the job and new skills. The career ladders projects are designed to expand and formalize this career advancement by strengthening programs to give workers incentives to gain skills and improve their wages.

In recent years, career mobility projects have been launched with California employers and industry associations—projects for certified nurse assistants in long-term care facilities, for room attendants, prep cooks and dishwashers in hotels and lodging establishments, and for child care professionals. Other projects are being developed to grow the skills and income of in-home health care workers and warehouse workers.

So far, these have been pilot projects, involving a few thousand workers. To grow in 2014 and beyond, “career ladder” efforts will need to win greater industry buy-in. They will also need to expand from their corporatist underpinnings, to include a broad range of California businesses and employers, beyond the major employers and regulated industries.

Much of what we will hear in 2014 about wage inequality from politicians and media commentators will be self-righteous (and essentially empty) denunciations of inequality. Let’s ignore them, and focus on projects that can have real and lasting impacts in California.