State’s Workers Making Progress

Income inequality is growing faster in California than in the nation as a whole. But research tracking the long-term progress of individual California workers shows that even those on the bottom of the economic ladder are moving up over time.

Examining the earnings of more than 180,000 Californians from 1988 to 2000, researchers headed by the Sphere Institute, a nonpartisan Bay Area think tank, found that the median annual earnings of the sample group rose 24% after adjusting for inflation. Gains were greatest for the lowest-paid workers, who saw their median annual earnings more than double over the 12-year period.

Though the research showed a sizable chunk of Californians mired at the bottom of the pay scale, most were able to improve their lot through some combination of experience, enhanced skills, better education or migration to better-paying industries.

“There are opportunities out there and people are taking advantage of them,” said Michael Dardia, vice president of the Sphere Institute, which will be releasing the study this week. “No question, some people are stuck.... But California has a dynamic labor market, and people are moving up.”

The findings illustrate how different income inequality can look depending on how you slice the figures. A number of studies have shown that the gap between the rich and poor in California has widened over the last two decades. This is due in part to tremendous gains made by professionals in sectors such as technology coupled with a huge influx of poorly educated immigrants into low-paying jobs. A 1999 study by the Public Policy Institute of California found that real wages for the state’s lowest-earning male workers fell by about 40% between 1969 and 1997, while those in the top echelon rose 13%.

Such so-called cross sectional studies provide useful snapshots of overall work force earnings at particular points. What they don’t capture is how specific individuals fare over the long haul and whether those at the bottom are doomed to stay there.

To get a better sense of whether workers earning the lowest wages in the late 1980s made any progress over time, Dardia and a team of researchers used payroll data from the state Employment Development Department to track the individual earnings performance of 187,000 randomly selected Californians across the earnings spectrum from 1988 to 2000.

Over that 12-year span, median annual earnings for the group rose by nearly 24% to slightly more than $49,000, while the lowest-wage workers saw their take double to $27,000. That compares with a 7% decline in real earnings for the entire California work force over the same period.

What that indicates, according to Dardia, is that the Californians who were earning the least in 1988 aren’t the same people at the bottom today. As individual workers gain experience and move up the economic ladder, their places on the lower rungs are being filled by younger, less skilled, increasingly immigrant workers. The result is that though California’s overall income distribution continues to look grim and intractable, individuals themselves are experiencing fairly strong earnings mobility.

“Just looking at [overall] income distribution, you’d think things weren’t so hot,” Dardia said. “But if you follow individuals over time, you find out that they aren’t doing so badly.”

Comparing the sample against the entire California work force, Dardia found that more than 80% of workers in the bottom earnings quintile were able to move to a higher quintile over the 12-year period. Comparing the sample workers against each other, more than half of those in the bottom quintile moved up by 2000. These findings are consistent with national research that has likewise found substantial earnings mobility for individual workers over time.

Though some of the gains reflect the natural tendency of earnings to increase due to age, experience or general economic growth, the report’s authors also found that workers improved their fortunes by switching industries. Earnings growth was higher for those leaving jobs in low-paid sectors such as retailing and agriculture. Only in durable-goods manufacturing did workers leaving the industry make smaller wage gains than those who stayed.

Dardia said his research underscores the resourcefulness of California’s workers in finding paths to upward mobility. But he said that doesn’t mean the state should simply ignore its growing income inequality and burgeoning ranks of the working poor. Though the majority of those at the bottom end of the pay scale appear to advance over time, a good number don’t. Likewise, some of the biggest gains in the study came from workers who simply moved from part-time employment to full-time jobs, which resulted in dramatic increases in their overall earnings but not necessarily their wage rates.

Michael Bernick, head of the state Economic Development Department, whose researchers contributed to the report, said the state needs to continue targeting skills training and education at workers having difficulty making the leap to better-paying jobs. He said the study shows the long-term benefits of staying in the work force and hopes it will help dispel the notion that entry-level employment is a waste of time.

“Getting work experience and building a job record does have value,” Bernick said. “This suggests that a lot of so-called dead-end jobs can lead somewhere.”