The gap between L.A.'s richest and poorest, which had widened considerably during the recession of the early '90s, has narrowed somewhat in the last two or three years, according to a new statewide study and experts who have studied the income equity issue.
"In 1996 and 1997, the gap between the rich and the poor grew slightly smaller, thanks to the strengthening economic recovery," said Deborah Reed, research fellow and economist with the Public Policy Institute. "We still have a long way to go, however, before the gap gets as small as it was at the peak of the last economic cycle, in 1989."
Indeed, the study shows that incomes for California workers in the bottom quarter of the scale bottomed out in 1995 and rose sharply in 1996 and 1997. Incomes for those in the top 10 percent increased almost as sharply, while those in the top 25 percent rose only slightly.
The study does not break out incomes by region, although Reed said that in compiling the numbers, she found that the Los Angeles area generally fit the statewide pattern. No comparable analysis of local income data has been done since a state legislative committee last year found that income disparity rose in L.A. County between 1994 and 1996.
The California findings echo national data showing a slight narrowing of income inequality in the last three years, after a significant rise earlier in the decade.
"The national evidence is very clear for 1996 through 1998: economic growth has stopped the increase in income inequality," said Steven Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. "People at the bottom and the middle have been experiencing increases in living standards."
State Assemblyman Wally Knox, D-Los Angeles, who formed a state legislative committee to look at the problem of the shrinking middle class, agreed that there has been a shift.
"Beginning in 1997, there was a discernable improvement in middle-class incomes, both on the nationwide level and here in California," he said. "At the same time, we have not seen a dramatic expansion of the working poor, as we did earlier in the decade."
Both Levy and Knox cited increases in worker productivity, the minimum wage and job formation as the keys to the improving lot of lower- and middle-income workers.
"Productivity growth in 1997 and 1998 topped 3 percent," Knox said. "That's triple the growth rate we've been stuck with for the past 25 years. It's no coincidence that when productivity growth took off, middle-class and working-poor incomes began to respond."
Nonetheless, a significant income inequality gap persists, especially in Los Angeles.
A study released last week by the United Way of Greater Los Angeles shows that 18 percent of all households in L.A. earned less than $15,000 in 1998, compared with 18.6 percent nationwide and 15.9 percent statewide. About 30 percent of households in L.A. had incomes below $25,000 last year, while 44 percent took in less than $35,000.
Meanwhile, the study says, 13 percent of L.A.-area households had incomes topping $100,000 last year and 22 percent had incomes of more than $75,000.
That leaves only about one-third of L.A. households with "middle-class" incomes of between $35,000 and $75,000 a year.
"We are definitely seeing a pyramid here in L.A.," said Joe Haggerty, president of the United Way of Greater Los Angeles. "You've got 15 percent at the top, a somewhat larger upper middle class, and then you've got the 45 percent of the people who are the working poor. These are the people we see every day, the waiters, the parking-lot attendants. They are really just barely making it."
The United Way study breaks out the income data for L.A. County into eight areas. The greatest concentration of working poor is in South Los Angeles, where two-thirds of the households earned less than $35,000 last year. Most other areas of L.A. had between 35 percent and 40 percent of the households in that range, another third in the $35,000-to-$75,000 range and about a fourth with more than $75,000 in income.
The disparities are due in large part to the different sources of income for each of the groups. Typically, lower- and middle-income workers derive most, if not all, of their incomes from wages, while upper-middle- and upper-income earners receive substantial portions of their incomes from other sources that have been appreciating more rapidly.
"Wages have been increasing at a 4 percent to 5 percent clip, which means that real wage growth, adjusted for 2 percent inflation, is about 2 percent to 3 percent," said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University. "But when you get further up the income scale, more people own homes or have investments in the stock market. If they have not tinkered too much with their investments, they have done very well, relatively speaking. Their incomes have been increasing at much faster rates."
Adibi and other economists noted that the income inequality picture is not as bleak as it was during the recession, when real wages, adjusted for inflation, were flat or falling. When coupled with spectacular gains on Wall Street for upper-income people, disparity between the rich and the poor widened dramatically.
But Knox said that the progress in cutting income inequality could be stalling out. He cited recent federal statistics showing a mere 0.1 percent growth in middle-class incomes during the first quarter of 1999.
"The last few years have been the best we've had in a long time for rising incomes," he said. "I really worry that at the first sign of recession, these gains will be wiped out and then some."
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