L.A.'s middle class isn't dead yet.


Indeed, contrary to conventional wisdom, Los Angeles has added middle-income jobs over the last six years, prompting a slight decline in income inequality even as rising inequality nationwide is drawing growing attention.


That's the surprising conclusion of a study to be released today by the UCLA Anderson Forecast at the Anderson School of Management, which looked at U.S. Census Bureau income data for the years 2000 through 2005.


"The common perception is that we lost middle-income jobs in the 1990s and that they haven't been replaced. That's not entirely correct," said study author Jerry Nickelsburg, senior economist with the Anderson Forecast. "There has been some filling in of middle income jobs over the last few years and that's why income inequality in L.A. has declined."


On an index of 1 to 100, with 1 being perfect income equality and 100 being perfect inequality, Los Angeles fell from 68 to 61 from 1999 to 2005.


To be sure, income inequality in L.A. remains more than 30 percent higher than the national average, and 20 percent higher than in 1990. And middle income earners, while they might be growing in number, still make up a much smaller portion of the L.A. economy than they did in 1990.


What's more, while the ranks of middle-income workers, defined as those earning between $45,000 a year and $60,000 a year, have risen, the perception of the disappearing middle class has not changed. That's primarily because skyrocketing housing prices between 2000 and 2005 and the generally high cost of living has increasingly put a middle-class lifestyle out of reach for middle-income earners.


"If you're earning $50,000 a year, which is defined as a middle-income, you can barely afford to rent a decent apartment, and buying a home here is impossible," said Daniel Flaming, president of the Economic Roundtable. "Sure, there may be some more middle-income workers, but they can't live the middle-class lifestyle, at least here in Los Angeles."


Nonetheless, the recent trend line is noteworthy, especially in light of a spate of reports concluding that income inequality has continued to rise across the nation. Just last week, an analysis of Internal Revenue Service data by University of California Berkeley economist Emmanuel Saez showed that the average person in the top 1 percent income bracket earned 440 times as much as the average person in the bottom half, double the spread in 1980.


Those sorts of figures prompted even President Bush to broach the subject over the last few months for the first time in his presidency, candidly admitting during a speech that income inequality is "real" and the nation's "dynamic economy" may be leaving working people behind.


Historical Problems

Income inequality in both the United States and Los Angeles has been generally increasing since 1970. But over the last 15 years, L.A. has been operating on its own set of dynamics.


The huge loss in durable manufacturing jobs in the early 1990s primarily in the aerospace sector led to a rapid "hollowing out" of L.A.'s middle class as laid off manufacturing workers left for greener pastures.


At the same time, a flood of immigrants entered the labor market at the bottom of the income ladder, many earning less than the minimum wage. "Our peak years for new immigrant arrivals were in the early 1990s," Flaming said.


Meanwhile, executive-level incomes were rising much more quickly, which was part of a national trend. This caused the average income for L.A. to rise, while the median, or mid-point, fell. The upshot was that income inequality in Los Angeles rose much more quickly than the rest of the nation.


On the income inequality scale of 0 to 100, L.A.'s inequality value jumped from 53 in 1989 to 68 in 1999, a number worse than in Mexico or Brazil, according to the Anderson report. By comparison, the U.S. score rose from 42 to 48.


Indeed, the polarization in L.A. was so great and so obvious that the United Way of Greater Los Angeles produced a landmark report in 1999 called "A Tale of Two Cities."


"By 1999, L.A. was way out of whack with the rest of the country when it came to income inequality," Nickelsburg said. "So it's no surprise that some corrective action would follow."


And that's exactly what happened, starting with the recession of 2001 to 2002. That slowdown hit low-wage manufacturing jobs the hardest; for example, thousands of "cut and sew" garment workers were laid off as the work was shifted overseas.


And once the economy started to recover in late 2002 and early 2003, Nickelsburg said there was a surge in the creation of middle-income level jobs in the service sector. "We're talking paralegals, draftsmen, information technology support, health care professionals, social service workers and teachers," he said.


In just these areas alone, well over 100,000 jobs were gained between 2000 and 2005, more than offsetting the loss of 80,000 durable goods manufacturing jobs lost. As a result of these trends, income inequality in Los Angeles started to shrink, reaching a level of 61 in 2005, according to the Anderson report. Meanwhile, in the U.S., income inequality continued to rise, though at a slightly slower rate than in the 1990s.


Nickelsburg said that L.A.'s income inequality level in 2005 was essentially what it would have been had it risen gradually over the last 15 years instead of spiking in the 1990s. "We've really returned to the long-term trend line."


Economist Flaming concurred, citing the leveling off of the city's poverty rate since 2000. "The poverty rate really shot up at an alarming pace in the 1990s," peaking at around 18 percent, he said. Over the last five years, it has hovered around 16 percent, with the nationwide poverty rate staying between 10 percent and 15 percent, he added.


Looking ahead, both Nickelsburg and Flaming said the gains in middle-income jobs are probably near an end and that income inequality in Los Angeles will likely resume its long-term gradual increase as the economy enters an expected slowdown.


Indeed, the general Anderson economic forecast for California calls for job growth for 2007 to be roughly 1.3 percent, down from 1.5 percent in 2006. Income growth is also expected to slow to 4.4 percent in 2007 from 6.3 percent in 2006.


"We're probably approaching the end of a fairly good run," Flaming said.


The Anderson Forecast includes 37 essays from local leaders who wrote about various Los Angeles problems and possible solutions. Two of those essays appear on page 11.

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