Since the Mid-1990s in California, Income Growth Has Been Confined to a Small Group of Counties

Economic opportunity is not evenly spread across California’s counties, and access to such opportunity is becoming more and more limited. The most recent Internal Revenue Service (IRS) data show that between 1995 and 2013, after adjusting for inflation, income growth was concentrated mostly in the San Francisco Bay Area, with some other coastal counties and the leisure grounds of the well-to-do, located inland from the Bay, also seeing appreciable growth.

Meanwhile, as the map below of the data illustrates, most of California’s other counties saw little to no growth in income. The Bay Area’s lead over the rest of California in average county incomes was not so wide in 1995. But the income growth that occurred in California between 1995 and 2013 happened primarily in the Bay Area.

 

The Legislative Analyst’s Office (LAO) recently blogged on a related point, noting that between 2011 and 2013, while many higher-income households migrated into expensive coastal metro areas, many lower-income households moved inland from these same metro areas. What this and the income data mapped above show is that wealthier families are concentrating into certain parts of California.

So why is this a problem? The greater Bay Area — including Silicon Valley — is clearly an economically dynamic area. Why doesn’t anyone who wants to be a part of that environment just move to the area?

Well, generally they’ve been priced out. Furthermore, current Budget Center board member Jed Kolko explained in 2013 that when Californians move, it’s housing costs that matter the most.

Unfortunately, moving to a more affordable area doesn’t necessarily improve someone’s economic opportunities. As we reported earlier this year, unemployment varies substantially across California regions, with most counties lagging far behind Bay Area counties’ strong recovery.

Notably, Chang-Tai Hsieh and Enrico Moretti at the University of Chicago and the University of California, Berkeley, respectively, found earlier this year that between 1964 and 2009 the constrained housing supply in highly productive cities like New York, San Francisco, and San Jose limited the whole country’s economic growth by preventing more workers from accessing the job opportunities in those areas.

The rising tide for the rich is not in fact lifting all boats.

But it doesn’t have to be this way. Hsieh and Moretti concluded that loosening land-use regulations to increase the supply of housing “would raise income and welfare of all US workers.” Alternatively, they suggest that developing public transportation networks between low- and high-wage localities could expand job opportunities while evening out wage growth. This alternative is also helpful given that not everyone can or wants to squeeze into just a few large cities like San Francisco and New York.

As economist Paul Krugman recently wrote, “Rising demand for urban living by the elite could be met largely by increasing supply. There is still room to build, even in New York, especially upward. […] The good news is that this is an issue over which local governments have a lot of influence. New York City can’t do much if anything about soaring inequality of incomes, but it could do a lot to increase the supply of housing, and thereby ensure that the inward migration of the elite doesn’t drive out everyone else.”

— William Chen