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2008 Indicators Report - The New Economy

The New Economy

While the Bay Area has been blessed with a much higher median household income than the state, it has also seen income inequality on the rise since 1990.  The ratio of household income between those at the 90th percentile, the rich, and those at the 10th percentile, the poor, has been rising in every subregion – especially in San Francisco where this measure of inequality has nearly doubled between 1990 and 2007.  

And it is not just a relative measure: since 1990, the income of the poorest in the Bay shrunk while the income of the richest swelled. Real (or inflation-adjusted) income for those at the 10th percentile in the region actually fell by 2 percent between 1990 while those at the 90th percentile saw a 28 percent gain, numbers pulled up by particularly sharp rich-poor divergences in San Francisco and the South Bay (Figure 4).  In the meantime, elsewhere in the state, those at the bottom actually made small gains and those at the top saw increases, to be sure, but only 16 percent.  Depending on which set of measures one uses – for example, taking other decile breaks for comparison – the Bay Area is now competing with Los Angeles for the title of the main driver of inequality in the state.

Figure 4. Percent Change in Real Household Income by Household Income Percentile, 1989-2007.
It is hardly a race any region wants to win, especially when the racial dimension steps into the room.  Not only do black and brown households crowd the bottom in terms of household income by race/ethnicity but they are the only groups who saw their median household income decline between 1990 and 2007.  While growth for Latinos has been negative, at least income levels for native and immigrant Latinos in the Bay actually exceeds those of their counterparts at the state level (though still far below whites).  For blacks, growth has been negative and black median household income in the Bay is actually lower than in California as a whole.

What explains the pattern?  Latinos and African-Americans alike need better and more work (Figure 5).  On the one hand, unemployment is an issue, especially for Black men – the unemployment rate for Blacks is twice that for Latinos and nearly three times that for whites.  On the other hand, working poverty is an issue, especially for Latino immigrants but also for African Americans.  In the rest of the country, the pattern seems to be that black poverty is driven by joblessness and Latino poverty by low wages at work – but Blacks in the Bay, more than in the nation, are working poor – attached to the labor force but without work that pays a living wage.  There is a clear opportunity here: the common struggle of working poverty offers an opportunity to build strong alliances around improving workforce conditions.

Figure 5. Demographic Composition of the Working Poor in the Bay Area and in California, 2007.
Employment standards need to prohibit the race to the bottom.  Community groups have done a heroic job of setting the bar higher for how the private sector should give the community its dues-- working for community benefits agreements, advocating for living wages, and supporting the unionization of workers.  But missing from the regiment is the assurance that communities and individuals are job-ready.

Many know that the future of the workforce is disjointed –  growing occupations do not match the skills of the current workforce (Figure 6).  What is less explored is the implication for racial inequality. In San Mateo County, for example, 38 percent of the new jobs projected for the next ten years will require a B.A. or above.  While more than 50 percent of whites and around 60 percent of Asians fit that description, the comparable share of African Americans is only 21 percent, for U.S.-born Latinos 26 percent, and for immigrant Latinos 10 percent.  All this while the payoff for a college degree is getting higher – while a college graduate earned 80 percent more than a high school dropout in 1990, by 2007 that premium rose to120 percent.

Figure 6. Educational Requirements for New Jobs and Levels of Educational Attainment by Race/Ethnicity in the Bay Area (Population 25+), 2007.
This is a recipe for widening the race gap.  And we know it is not the right strategy to downscale the high-paying jobs because it is high-skill and high-tech employment that allows the region to weather economic downturns.  Instead, let’s bring up the bottom; upscale the training and make sure we get it to those most in need.

And they need it now, particularly in light of continued pressures on housing expenses.  Housing expenses are eating up a larger share for disadvantaged populations: Latinos are 19 percent of the renters but 26 percent of those considered severely rent-burdened; African Americans are 11 percent of the renters but 16 percent of those who are severely rent-burdened.

Tired of rent burden, many families of color sought to catch their part of the American Dream with home purchases in recent years.  Now, they are being hit hard by the housing crisis (Map 2).  It has been widespread – our analysis of the data suggests that there have been over 42,000 foreclosures in the last three years.  And the consequence for a racial wealth gap is severe: when we ranked the zip codes in the Bay Area by the rate of foreclosure, we found that those areas in the lowest foreclosure quintile were 62 percent white; those in the highest foreclosure quintile were 72 percent people of color.

Map 2. Total Number of Foreclosures by Zip Code between October 2005 and October 2008.
With widening income gaps, mismatch between education and job creation, and the immediate threat of losing one’s home – it is hard to find a light at the end of this tunnel.  But the fascinating and hopeful aspect comes from the creativity of community and business organizations as they look for a path to a truly sustainable and equitable region.  And they have often found themselves looking to the new environmental challenges and the opportunities they present.