The Negative Implications of Los Angeles’ Increasing Inequality

south-los-angeles-110-and-105-freeways-aerial-view-from-north-august-2014On a broad level, America is seeing rapid, widespread demographic shifts. But some areas are experiencing greater shifts than others. People of color will soon become the national majority, and at the same time, wealth inequality is growing. Wages have been stagnant for all but the richest earners, middle class job opportunities are becoming more scarce, and large racial economic inequities still persist. If inequality trends and demographic shifts continue on their current trajectory, the disparity will soon have an even greater impact on the nation as a whole. What these national statistics fail to convey are the extensive effects these trends also have at the local level.

In Los Angeles County specifically, there already exists greater inequality than the national average. A recent paper by the USC Program for Environmental and Regional Equity (PERE) reveals some causes and effects of this phenomenon. One factor influencing inequality in Los Angeles is a changing economic structure. Los Angeles is losing middle-wage jobs while gaining more low- and high-wage jobs. Between 1990 and 2012, Los Angeles experienced a 27 percent decline in middle-wage jobs in industries such as trade, construction, and manufacturing. During the same time, however, it gained low-wage jobs (a 15 percent increase) and high-wage jobs (a 6 percent increase). Prevalent not just in LA but the whole country, a related trend is uneven wage growth. Between 1990 and 2012, the highest earners saw marked growth in their earnings–a 38 percent increase, adjusted for inflation–while simultaneously, wages for low-income earners dropped one percent.

FredGraph

The ratio of mean income for highest 20% of earners, divided by the mean income for the lowest 20% of workers in Los Angeles, 2010-2017.

As shown above, income inequality in LA has risen noticeably: the inequality ratio has increased by two points in eight years, no small amount. But more alarming is how the trend is increasing consistently, with no telling how or when it will level off or reverse.

Demographic changes further account for growing disparities in wealth, because people of color are more likely to be either impoverished or working poor than whites. Los Angeles was one of the first cities to cross the “majority minority” threshold, and the relative proportion of people of color is only getting higher. Because of Los Angeles’ high diversity, the discrepancy in earnings between whites and people of color makes its income inequality even greater than the national average. Today, nearly one quarter of African Americans and Latinos in LA live below the poverty level, compared to only 10.6 percent for Whites, and the working poverty rate for Latinos is almost three times as high as for African Americans (12.5 versus 4.3 percent).

Education is another key factor of inequality. Unemployment generally decreases and wages increase with higher educational attainment, but racial and gender gaps persist in the labor market. Among college graduates with a bachelor’s degree or higher, blacks and Asian Americans and Pacific Islanders on average earn $6/hour less than their white counterparts while Latinos earn $9/hour less. At all education levels, women of color have the lowest median hourly wages. And only 10 percent of Latino immigrants, 28 percent of U.S.-born Latinos, and 34 percent of blacks and Native Americans have earned an associate’s degree or higher, which will be required for 44 percent of California’s jobs by 2020. This will likely lead to a skill gap, decreasing the county’s competitiveness in the economy.

If minorities benefit less in terms of lower earnings from college education, they have less of an incentive to earn a degree. Nevertheless, returns to education are still significant for minority workers, so they still stand to benefit greatly from any increase in availability of college education. This also increases the probability that their children will earn college degrees, which helps minorities to break out of the cycle of poverty.

Los Angeles residents rely heavily on driving as a mode of transportation, which influences commuting patterns: getting to one’s workplace is difficult if owning a car is financially unfeasible. Eighteen percent of Black households and 11 percent of Latino households do not have access to a car. In the overall region, very low-income African Americans and Latino immigrants are most likely to use public transit. The implementation of voter-approved tax measures to expand the region’s transportation infrastructure is an important opportunity to connect those neighborhoods and communities that have been left behind. This would make it more convenient for minorities to work at faraway jobs, improving the range of work opportunities available to them.

The Los Angeles region’s rising inequality and racial discrepancies in income, education, and poverty are bad not only for communities of color, but also for the region’s economic growth and prosperity. According to the PERE’s analysis, if there were no racial disparities in income, the region’s GDP would have been $380 billion higher in 2014–a 58 percent increase. This increased GDP would be accompanied by greater consumer buyer power and increased tax revenue, enabling future growth due to the increased output and growing population. While eliminating all racial disparities would be difficult, minimizing these divides as much as possible would be advantageous for the County.

One method to combat current and future inequality is to focus future resources and investments on communities that have been left behind in the County’s development. Impact investing is one recent phenomenon seen in LA, where companies create opportunities specifically for impoverished areas. In the words of LA’s Mayor Garcetti:

Major local companies are providing funding, internship opportunities, workforce development, and mentorship programs to young people from underserved communities. In turn, our rising industries are leading the charge on developing an inclusive workforce that reflects the diversity of Los Angeles.

Fostering and encouraging such civic engagement will provide great returns to the overall county. Secondly, leaders must be willing to stick with comprehensive strategies over the long-term. The problem of inequality has many facets and no simple solution, especially in the short-term. Politicians and agents of change in Los Angeles should be mindful of this, because bureaucracy could cause aid from philanthropists to be spent inefficiently.

Furthermore, subsidizing education for minority workers within Los Angeles and making a concerted effort to reduce racial discrimination in the workforce would create great returns and provide more social justice to the relatively poorer, powerless communities. Along with measures to expand the region’s transportation infrastructure, these would be progressive, worthwhile steps towards greater levels of equality and productivity which has not been seen in recent years. Every single resident of LA stands to benefit from reducing racial discrimination and lack of opportunity, and as such it should be a much higher priority on the city’s to-do list.

Los Angeles can be a model for change and reform nationwide: As the USC researchers state: “just as Los Angeles has led the nation in demographic transformation and income inequality, so too can it lead the nation in its strategies and solutions for a more equitable future. Doing so will require mechanisms for documenting solutions, evaluating progress, and for broadcasting lessons learned and successes that can be scaled to change the course of the nation.” Los Angeles is a city home to millions of diverse residents, many of whom are poor and all of whom are affected by rising inequality. If LA reduces its inequality problem, it can maintain its economic strength and cultural diversity and also provide better outlooks for many residents’ futures.