News Release
August 21, 2000
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Lily Ruiz, Media Relations
Lily Ruiz
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(415) 974-3240 |
Have Californians kept up in the 1990s?
California family incomes shrink in comparison to
counterparts outside the State
SAN FRANCISCO, August 21, 2000 - Although the California economy has
outperformed the U.S. economy for nearly five years, Mary Daly, senior
economist at the Federal Reserve Bank, notes statistics suggesting that
"in 1998, a greater number of Californians lived in poverty, a smaller
number were in the middle class, and a majority had family incomes below
those of comparable families living outside of California."
In the August 25 FRBSF
Economic Letter (No. 2000-25), Daly summarizes her research with
Heather Royer examining how demographics and business cycle timing account
for the divergence of incomes between California and the rest of the U.S.
Using data from the March Current Population Survey (CPS), Daly tracks
family income in three peak years--1969, 1979, 1989--and 1998, the latest
year of data available. She finds that in each of the peak years, "families
in California had higher real adjusted incomes than families elsewhere
in the United States at every percentile of the income distribution,"
while in 1998, only families in the 70th percentile and above were ahead
of their counterparts in other states.
To explain why California's experience has diverged from the rest of
the U.S. Daly uses statistical techniques to adjust the data to account
for differences in two factors: demographic characteristics and business
cycle effects. The demographic characteristics include age, race, gender,
and education. With respect to business cycle effects, Daly notes that
"California experienced a much longer and deeper recession in the early
1990s." Based on payroll employment growth, the U.S. economy outside of
California began to recover as early as 1992, but in California, job growth
did not turn positive until early 1994. Daly writes, "In addition to a
longer recovery period, the number of jobs lost in California during the
prolonged recession made for a slow return to pre-recession levels of
employment. Total payroll employment did not surpass its pre-recession
peak until January 1996. According to these data, California's expansion
is about two years behind the rest of the nation's."
Her analysis shows that differences in demographics and the lag time
in the recovery of California's economy explain much of the current difference
in incomes between families in California and the rest of the U.S.
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NOTE: This FRBSF Economic Letter is available online at: http://www.frbsf.org/econrsrch/wklyltr/2000/el2000-25.html
Additional research on this topic was published in the FRBSF Economic
Review 2000 in a paper entitled "Cyclical and Demographic Influences
on the Distribution of Income in California" by Mary Daly and Heather
N. Royer. This paper can be viewed online at: http://www.frbsf.org/econrsrch/econrev/2000/article1.pdf
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