By LARRY KANTER

Senior Reporter

L.A. may be in the midst of a robust recovery, but you would be hard pressed to notice it at the lower rungs of the region’s economic ladder.

While new millionaires are being created in Los Angeles at a higher rate than at any time since the late ’80s, the number of people in lower-income households also is on the rise. Meanwhile, the ranks of L.A.’s broad middle class are rapidly diminishing.

How can that be? Why does today’s rising tide seem only to be lifting the yachts?

The answer has a lot to with the kind of economy that’s emerging from the ashes of the recession.

Driven by technology, multimedia, entertainment, business services and international trade, it is an economy that places an extraordinary amount of value on education and skills. Those who lack such expertise are finding themselves effectively priced out of the marketplace.

That is a stark contrast from L.A.’s post-World War II economy, when a thriving manufacturing and aerospace sector provided easy access to a middle-class livelihood for hundreds of thousands of workers with little more than a high-school diploma.

The end of the Cold War and rise of the global economy changed that. Between 1987 and 1996, L.A. County lost 241,000 manufacturing jobs as a result of the restructuring of the U.S. economy, according to the Economic Development Corp. of L.A. County.

And though the economy has rebounded since then, the current wave of prosperity is, by and large, being ridden by the minority of Angelenos able to tap into the generally high-paying positions in the new information-based economy. As for the rest of L.A. residents, they’re increasingly stuck with service-sector jobs, many of which lack benefits and opportunities for advancement.

And remember L.A.’s once broad middle class? It seems to be disappearing.

The number of L.A. County households with annual incomes of more than $1 million swelled by 52 percent between 1994, when L.A. began to emerge from the recession, and 1996, when the recovery was well under way (and the latest year for which data are available), according to an analysis of state tax-return data by the Assembly Select Committee on the California Middle Class.

At the lower end of the spectrum, the number of L.A. County residents in households with incomes of less than $20,000 a year grew by 14 percent over the 1994-96 period. That low-income population included nearly 3 million Angelenos in 1996 more than 40 percent of the total number of L.A. taxpayers and dependents.

As for the middle class, the number of Angelenos in households with annual incomes of between $40,000 and $100,000 declined by more than 12 percent over the two-year period, from 2.2 million to 1.9 million.

Despite the strength of the current recovery, median household incomes in Los Angeles have been falling for most of the 1990s. In inflation-adjusted 1998 dollars, the median household income in L.A. County was $39,393 in 1997 a drop of 13 percent from $45,239 in 1990, at the peak of the last business cycle, according to an analysis of U.S. Census data by the California Budget Project, a public policy group in Sacramento.

So where has the middle class gone? Some folks clearly moved up, buoyed by the recovering economy and rising number of dual-income households. Others, perhaps downsized manufacturing employees, undoubtedly moved down. Still others, discouraged by the recession, may have left the area entirely for new opportunities in the Sun Belt or Pacific Northwest.

“When middle-income jobs diminish, you’ve got yourself a ladder issue,” said Assemblyman Wally Knox, D-Los Angeles, chairman of the Select Committee on the California Middle Class. “If current trends continue, people are going to have to make a leap from $25,000 a year to $100,000 a year.”

The hollowing of the middle ranks is creating two urban realities in Los Angeles: one for the upper classes and one for those left behind. Not surprisingly, this has sparked a new wave of activism by L.A.’s labor unions eager to boost the wages and benefits of the region’s growing legion of service-industry employees.

“You can look around L.A. and see that we’re a two-tier city the haves and have nots,” said Miguel Contreras, executive secretary of the L.A. County Federation of Labor. “You have so many people at the lower rungs of the ladder, working at minimum-wage jobs, and living in crowded housing. You hope the recovery will trickle down, but so far it hasn’t.”

Labor unions are in no mood to wait. Last year, a union-backed drive led the L.A. City Council to pass the living wage ordinance, which raised wages and benefits for service employees working for firms that do business with or receive assistance from the city. And they’re turning their attention to large development projects such as the expansion at Universal Studios Inc. and Los Angeles International Airport.

“Service-industry jobs can be good jobs,” says Contreras. “They will never be like technical jobs, but you can make enough to earn a living and raise a family.”

If the changing economy is exaggerating the gap between rich and poor, so is Wall Street. Thousands of Angelenos have seen their net worth expand by as much as 30 percent a year over the past several years, simply by investing in S & P; 500 index funds.

Problem is, temporary employees, garment workers, janitors and housekeepers don’t get stock options. Nor do they have the education not to mention the discretionary income necessary to participate in the bull market.

When it comes to stock ownership, “the top 1 percent is where almost all of the action is,” said James P. Smith, senior economist at Rand Corp. in Santa Monica.

As for L.A.’s enormous population of new immigrants and low-wage workers, “these people have not gained anything from the stock market rise. It’s almost irrelevant to their lives,” Smith said.

Still, there are some signs of change. The L.A. County Department of Social Services, for example, reports a steady drop in the number of aid recipients over the past 18 months.

In March, about 1.5 million people sought aid from the county, compared with a high of almost 1.9 million in May 1994. What’s more, a growing number of welfare recipients are supplementing their benefits with a full- or part-time jobs, suggesting expanded opportunities at the lower end of the economy.

But many worry that without a better education system and sharp increases in the amount of investment capital flowing into the inner city, Los Angeles could be in store for some tough times ahead.

“The city of Los Angeles has an enormous number of people who are under-skilled, under-educated and ill-housed,” said Ted Van Dyk, executive vice president of the Milken Insitute. “You cannot have this large a percentage of your population on a continuing basis in this kind of condition without having a social breakup of some kind. And that is one of the challenges in particular facing L.A.”