Middle-Class Families Put in Economic Bind

By STUART SILVERSTEIN and LEE ROMNEY

Aug. 6, 2001 12 AM PT

TIMES STAFF WRITERS

California is a land of economic extremes, with more than its share of big earners and poor people. But, according to Census Bureau figures being released today, it’s also short of something: middle-class families.

The latest figures portray California as among the nation’s leaders in families earning more than $200,000 a year and, at the same time, a place with above-average percentages of impoverished children.

That left the state with a pinched middle class at the end of the decade. For instance, California ranked second lowest among the 50 states in its percentage of families with incomes ranging from $35,000 to $75,000 a year. Only 34.7% of California families fell into that mid-range category.

What’s more, the soaring cost of housing worsened the squeeze. Both renters and homeowners in California devote a bigger share of their incomes to housing than their counterparts in almost all states.

“It presents a picture of a struggling middle class” in the state, said Deborah Reed, an economist at the San Francisco-based Public Policy Institute of California.

The figures don’t come from Census 2000 but from a newly designed supplemental survey conducted by the Census Bureau of 700,000 households throughout last year. The findings meld economic data from 1999 and 2000. As a result, the report differs in several key ways from the Census Bureau’s 1990 survey, and it is difficult to draw precise conclusions about how things have changed since then.

Even so, the numbers offer a snapshot of California at the height of the high-tech boom and shed light on how the state stacks up against other parts of the country.

They also provide fresh evidence that a striking income gap persists between the richest and poorest residents.

Previous studies based on federal data have shown that even as the income gap stopped growing nationally in the mid-1990s, it continued to expand in California.

Experts have attributed the California pattern partly to the devastation of the state’s high-paying aerospace industry in the early 1990s, which eliminated many middle-class jobs. They also point to the continuing influx of poorly educated immigrants who can find only low-wage work. The high-tech and Hollywood booms of the past decade, meanwhile, added to the pool of high-income workers, but only partly replenished the state’s middle class.

In fact, the technology boom of the 1990s may have widened the gap between haves and have-nots, some economists contend. A growing premium on skilled labor helped educated workers climb up the income ladder but translated into even less opportunity for the unskilled, said Cecilia Conrad, an economist at Pomona College.

A recent survey placed Massachusetts first and California second as high-technology economies, Conrad said, mirroring their ranks for the states with the smallest middle class.

Whatever the causes, a shrinking middle class and high housing costs represent key challenges to the state’s economy and quality of life, said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy.

“The people who have entered the economy at the bottom, whether they’re immigrants or coming off welfare, need a chance to move up into the middle class,” Levy said.

In addition, he said, without a broad base of middle-income families with money to spend, the state’s overall economy could falter. And Levy said high housing costs not only squeeze California families’ budgets, but make it harder for companies here to recruit and keep workers.

Still, the new census figures underscore that, for all of its problems, California remains a bastion of wealth. California ranked fifth among the 50 states in the percentage of families with incomes exceeding $200,000. It came in at 3.7%, ahead of the national average of 2.7% but well behind No. 1 Connecticut, at 5.7%.

On the other hand, the percentage of California families with incomes below $20,000 was 15.8%, compared with the national average of 15.7%.

In addition, the figures found that 19% of California’s children lived below the poverty line, versus 17% nationally.

The California median family income in 1999, at $53,037, still easily exceeded the national average of $49,497. But experts said many Californians’ budgets are stretched thinner because families in this state tend to be larger. Once family size is taken into account, California family incomes are lower than those in other states, Reed said.

Moreover, experts emphasized that poverty is almost certainly more widespread in California than the new census numbers suggest. The federal poverty level is set at the same amount across the country--$16,895 in 1999 and $17,463 in 2000 for a family of four. But the relatively high cost of living in California means that families not technically designated as poor may be barely scraping by.

Housing is a prime example of how those high living costs strain family budgets.

The Census Bureau figures show that 47% of California’s renters devoted 30% or more of their incomes to rent. Among the 50 states, that was second only to Louisiana and significantly higher than the national average of 41.4%.

The preponderance of renters in the state compounds matters: 43.9% of California homes were rentals, second only to New York and well above the nation’s 33.8%.

California homeowners are also feeling the strain. More than a fifth of all homeowners in the state, or 20.7%, put more than 40% of their income into their mortgage and other housing costs--second only to Hawaii--while the same was true of only 13.9% of homeowners nationwide, according to the census figures.

California broke rank with the nation in other key ways.

Poor children in the state are as likely to come from households headed by two parents as from those headed by single moms. Elsewhere across the country, poor children are much more likely to come from homes headed by single mothers.

Experts said the trend appears to be linked to the state’s relatively large Latino immigrant population, whose poor are more likely to come from intact two-parent families. Furthermore, children of two-parent families in California are more likely to be poor than they are elsewhere.

The trend could have an impact on the way poverty is perceived and treated.

“Some people want to dismiss poverty as based [entirely] on family structure: ‘If you just got married, folks, you’d be out of that morass,’ ” said Jared Bernstein of the Economic Policy Institute in Washington, D.C. “Clearly, that’s not the case here.”

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Middle-Class Squeeze

California ranks high among the 50 states in its percentage of families with incomes exceeding $200,000, but the state has a relatively small middle class, and many families who devote more than 30% of their income to paying the monthly rent.

Highest % of families with income of $200,000 or more in 2000:

1. Connecticut: 5.7%

2. New Jersey: 5.3%

3. Massachusetts: 4.7%

4. New York: 3.7%

5. California: 3.7%

U.S. average: 2.7%

Lowest % of families earning $35,000 to $75,000 in 2000:

46. Maryland: 35.8%

47. Louisiana: 34.9%

48. New Jersey: 34.8%

49. California: 34.7%