Digging into the data: How attainable is the 'California Dream' today?
By Matt Levin and John Osborn D'Agostino
No one has the exact same definition of the California dream. Ask the 39 million current Californians about what the dream should be, and aside from most of us agreeing that the daily temperature should dip no colder than the mid-‘50s, you’ll likely get 39 million very different answers.
But the so-called “Golden Era” of California—that faded Technicolor image of a magical time in the 1960s when as soon as you crossed the stateline Ronald Reagan would hand deliver you a two-story house and 2.5 children and tiki-themed patio furniture—still seeps into our expectations of life here.
That vintage California dream was primarily lived out by white families. Discrimination in law and practice made it difficult for people of color, who made up a smaller proportion of Californians than they do today, to share in that prosperity. And major swaths of California’s current population arrived here well after that “Golden Era” had passed.
Still, half a century later, this...
...bears a striking resemblance to this...
Celebrity endorsements aside, there’s an increasingly pervasive feeling among those of us who actually live here that the California dream is just harder than it used to be. A recent USC Dornsife/Los Angeles Times poll found that only 17 percent of Californians believe the state’s current generation is doing better than previous ones. More than 50 percent thought younger Californians were doing worse.
They’re not wrong.
Over the past four decades, California middle-class incomes have stagnated: The median California family is making only marginally more now than they were in 1980. More than half of Californians born that year made less than their parents did by age 30.
That’s a problem because at the same time, the state’s cost of living has exploded. A house that 50 years ago cost about three times a younger California household’s salary now costs seven times what a younger household earns.
If the past half-century has been rough for middle income Californians, it’s been brutal for those lower on the income ladder. Starting in the late 1970s, California’s poverty rate crept higher than the national average. Now, when cost of living is factored in, we’re the poorest state in the country.
Eulogizing the California dream has developed into its own cottage industry in recent years, with politicians of all stripes promising to restore our glory days. All too often the gloom and doom obscures objective gains the state has made in service of a sepia-toned narrative. Your average Californian is much more likely to get a college education and much less likely to be mugged today than forty years ago. That's a good thing.
But something is changing, and Californians can sense it. Here’s the data behind how four common California dreams are slipping away.
The dream of being—and staying—middle class
When was the best time to be a middle-class Californian?
Well, the late 1960s and ‘70s were pretty good years. Median family incomes rose steadily in real terms throughout the period, and by 1980 the average household was making 20 percent more than in 1967.
Starting in 1980, incomes for middle-class Californians essentially stagnated. By 2014, the average California family, after adjusting for inflation, was making only 8 percent more than it made three decades ago. While earnings have ticked up since then, the brutal recessions of the early 1990s and late 2000s essentially wiped out entire decades of modest income gains.
California inequality, through the years
Source: Public Policy Institute of California analysis of Current Population Survey data; all figures in 2016 dollars. Incomes normalized for a family of four.
“The starkest comparison is between families at the middle and less than the middle with those at the very top,” says Sarah Bohn, research fellow at the Public Policy Institute of California. “We’ve all experienced booms and busts through economic cycles, but over time the highest-income families in the state have really seen a larger growth in their opportunities relative to middle income families.”
That story is by no means unique to California. But it is worse here than in the rest of the country. Incomes for the median family grew at a faster clip over the past 30 years nationwide than in California. And the gap between rich and middle class is higher here than the vast majority of other states.
Stagnating incomes and rising inequality don’t necessarily mean Californians are having a tougher time making ends meet. But the costs of staying middle class, or jumping up the income ladder, are higher than they used to be.
“When you think about what it took to make ends meet in 1967, it’s very different from what it takes to make ends meet today,” said Bohn, who specializes in income inequality trends. “Child care expenses with both parents working, medical out-of-pocket expenses, not to mention other things that are necessities that didn’t even exist in the ‘60s that you really need today.”
The dream of having your children do better than you
Part of the allure of California has always been the possibility of making it to the “1 percent,” whether via the Gold Rush or Hollywood or Silicon Valley. And here the top-earning households are doing better than just about anywhere else in the country.
But inequality could be linked to another disconcerting trend: the inability of younger households to do better than their parents.
Fewer than half of California children born in 1980 were making more at age 30 than their parents did at their age. That’s the first time that percentage has slipped below 50 percent since the 1940s.
Your odds of out-earning your parents in California
Source: Chetty et al, "The Fading American Dream: Trends In Absolute Income Mobility Since 1940"
Again, declining income mobility is not just a California story. Younger people across the United States are having a harder time matching their parents' standard of living. But younger Californians are doing notably worse than their counterparts in some other states—younger South Dakotans and Arkansans, for instance, are much more likely to be out-earning their parents than are young Californians.
The dream of escaping poverty
While middle incomes have stagnated in California over the past four decades, lower-income households have actually seen their earnings drop.
When you factor in the cost of living, California now has the highest poverty rate in the country. We’re worse than states such as Mississippi and Alabama. Roughly one in five Californians now struggle to make ends meet.
California, the poverty outlier
Source: "Poverty In The 50 States: Long-Term Trends and the Role of Social Policies," Wimer et al., Columbia Population Research Center. Poverty measure also includes effects of safety-net programs not included in official poverty statistics.
That wasn’t always the case. California used to have a lower poverty rate than the national average up until the late 1970s. But poverty in California surged in the 1980s before peaking in the recession of the early 1990s.
The picture would be even bleaker if you eliminated state and federal safety net programs such as food stamps that have expanded significantly in recent years. Without those, nearly 1 in 3 Californians would be poor.
The dream of owning a home
Part of the California dream has always been homeownership. But that dream has become increasingly unattainable in recent years.
“I am very nervous that we are at a point where absent an economic downturn that kind of forces prices to drop, that we are really in an unsustainable situation,” says Carol Galante, director of the Terner Center for Housing Innovation at the University of California, Berkeley. “The lack of ability to save for a downpayment, it’s just becoming unsustainable.”
In 1969, the median sales price of a California house was about $166,000 in today's dollars. That was about three times the average income ($55,400) of younger California families at the time who might be in the market for a starter home . Today, the average California home sells for over $500,000--seven times a younger family's earnings.
Home Price Verses Median Income for Younger Californians
Source: Public Policy Institute of California analysis of Current Population Survey data; California Association of Realtors.
Other dimensions of the dream--with some bright spots!
Rising income inequality, spiraling poverty, the struggles of the middle class—beyond being total downers, these trends feel so abstract and intractable. So let’s drill down on some more specific dimensions of the California dream, and compare how things are now versus how they used to be.
Yes, California is a more expensive place than it once was. And much of that is due to astronomical increases in housing costs.
In 1960, average California renters saw about 20 percent of their income go to rent. That’s up to nearly 37 percent now. The trend is even steeper for younger Californians, who are seeing nearly half their paychecks go to rent.
When rents are higher, it gets tougher for renters to save money for a downpayment on a house. That, combined with rising single-family home prices and the end of easy mortgages, has sent California’s rate of home ownership dipping.
Whose Dream Is This? Demographics, Inequality and Immigration
Part of the reason the California dream of the ‘50s and ‘60s feels mostly white is obvious—back then, California was mostly white. As recently as 1970, whites comprised more than 70 percent of the population.
That has changed dramatically. Driven by the tremendous growth of its Latino and Asian populations, California is now famously a “majority minority” state, where no ethnic group claims more than 50 percent of residents. The number of white Californians has actually dropped by about 2 million residents since 1990.
An increasingly diverse California, however, has not translated into an increasingly equal one. While the average Asian California household has caught up to whites, both Latino and African-American families make significantly less—with that gap only widening in the wake of the Great Recession of the late 2000s.
“The bulk of California’s workforce is going to be young Latinos now,” said Sonja Diaz, founding director of the UCLA Latino Policy & Politics Institute. “But Latinos still lag behind in a number of socioeconomic indicators, in terms of homeownership, income gains, educational attainment, access to health care, living wage jobs.”
California has always been a magnet for immigrants from far and wide. While the rate of international migration has slowed in recent years, the state still boasts the largest concentration of foreign-born residents in the country.
But starting in the 1990s, California appears to have lost much of its lure to the rest of the U.S. Over the past two decades, California has lost 1.8 million more residents than it has gained from the rest of the country. And unlike in previous decades, that trend is persisting through good economic times.
Clark Kerr would have lots to be proud of if he were alive today. The architect of the state’s 1960 Master Plan for Higher Education, Kerr envisioned a world-class public university system accessible to California high school students. The top one-eighth would be admitted to the University of California, which aimed to be the envy of public higher education nationwide. The top third would have a place at a California State University campus, and anyone who could benefit from higher education could enroll in state-operated community colleges.
Partly due to Kerr’s ambitions, Californians are a lot more educated than they used to be. The percentage of Californians with a bachelor’s degree has nearly tripled since 1960, with particularly strong gains among California women. Graduation rates at the University of California are some of the highest in recent decades.
But adjusted for inflation, the cost of one year of a University of California education today is seven times more than it was in the mid-1960s. That’s mostly because state support for UC started dwindling in the early 2000s. At its peak, the state provided more than $26,000 per student to UC. It now provides about half that amount.
California has a reputation as a high-tax state. Has that always been the case?
Depends on how much money you make and what type of tax you’re talking about.
While the state has increasingly leaned on high-earners to foot the cost of government over the past few decades, the median California household has actually seen their income tax bill drop.
Effective property taxes in California have dipped below the average in most other states since the passage of Proposition 13 in 1978, which limits what local governments can collect form rising property values. California now has one of the lowest effective property tax rates in the country.
But one regressive tax has increased significantly since the 1960s: the sales tax. In 1964, the state sales tax totaled 4 percent. That rose to over 7 percent by the early 2000’s.
The decline of manufacturing and the disappearance of blue-collar jobs with decent pay and good benefits is an economic narrative typically reserved for the Rust Belt. But in explaining the erosion of California’s middle class, the disappearance of manufacturing—particularly in the defense and aerospace industries that dominated Southern California during the Cold War—plays a central role.
“Silicon Valley does not provide those kind of big manufacturing jobs,” said Dan Mitchell, professor emeritus at the Anderson School of Management at the University of California, Los Angeles. “There’s no equivalent of an aircraft assembly plant that you get from that. IT does provide high-paying, white-collar jobs, but certainly not as many and not in the same location.”
On the positive side, in good times California’s economy continues to outshine most of the rest of the U.S. In 13 of the last 20 years, the state’s annual economic growth has surpassed the national rate.
But California has always been a boom-and-bust state, and recessions play out worse here than elsewhere. The recession of the early 1990s, the dot-com bust at the turn of the century, and the Great Recession all hit California harder than in most of the rest of the country.
One indisputable improvement in California’s quality of life over the past few decades: The state is a lot safer than it used to be.
Rates of violent and property crime have reached lows not seen since the late 1960s.
California’s crime drop is part of a broader national trend enjoyed in most of the rest of the country. And along with most other states, California has seen a major increase in its incarceration rate over the same period.
The California dream is suffering. Yes, in many ways it is harder to live here than it used to be.
But most Californians remain stubbornly loyal to the state.
The same poll that found so many Californians pessimistic about the next generation's prospects also asked whether they agree with the following statement:
“Overall, I’d rather live in California than anywhere else.”
Seventy percent of respondents said yes.