Poorman

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By LARRY KANTER

Senior Reporter

Los Angeles may be riding the crest of economic good times, but the further you travel down the income ladder, the more the wave resembles a trickle.

Three years into the region’s recovery, the bulk of the growth remains concentrated in the upper reaches of the economic spectrum. While the expanding economy and the bull market are creating new millionaires in Los Angeles at a double-digit rate, the number of people in low-income households also is on the rise. As for L.A.’s broad middle class, its ranks are thinning.

“All of the dynamism in the economy is located in the top 20 or 25 percent that’s what is driving this recovery,” said Assemblyman Wally Knox, D-Los Angeles. “It’s almost as if there are two economies an economy for the top 25 percent, and an economy for everyone else.”

That trend is seen in a report on income distribution by the Assembly Select Committee on the California Middle Class, which Knox founded last year out of concern that the state’s middle class is an endangered species.

The survey, prepared at the request of the Business Journal, examines state tax-return data and offers a rare glimpse at what’s happening among L.A.’s richest and poorest taxpayers and their families.

The number of L.A. County residents in households with adjusted gross incomes of more than $100,000 a year jumped 30 percent between 1994 and 1996. The number of people in households with incomes of more than $1 million grew even faster, swelling by 52 percent between 1994, when L.A. finally began to emerge from the recession, and 1996, when the recovery was well under way (and the last year for which data are available).

But those at the low end also have seen their ranks expand.

L.A. residents in households with incomes of less than $20,000 a year grew by 14 percent between 1994 and 1996, rising from 2.6 million to nearly 3 million more than 40 percent of the total number of taxpayers and dependents in 1996.

Meanwhile, the middle is withering. The number of Angelenos in households with incomes of between $40,000 and $100,000 declined by 12 percent over the two-year period, falling from about 2.2 million to 1.9 million.

Knox concedes that the committee report can be read in several, even contradictory, ways. The growth at the low end could indicate the return to the workforce of those previously discouraged by the recession.

Nor is there any way to determine what has happened to the absent middle-income earners. A good number of them particularly dual-income families undoubtedly have moved up the income ladder. Others, perhaps the victims of downsizing in the aerospace industry, may have slipped down the scale. Still others may have left L.A. altogether.

But one fact, according to Knox, remains difficult to dispute: “There is a growing disparity between high-income and low-income, and a hollowing out of the middle.”

And the reason for that has everything to do with L.A.’s post-recession economy, most economists agree.

“Those who are connected with the new information economy are doing fine. But not everyone is working there,” said G.U. Kreuger, deputy chief economist for the California Association of Realtors. “There seems to be some bifurcation, where at one end you have the entertainment industry, new technology, the top level of the apparel industry, the top level of tourism. And on the other hand, you have everyone else.”

Added Jack Kyser, chief economist of the Economic Development Corp. of L.A. County: “We’re moving into a new economic era, in which you have to have education, you have to have training. So many of the avenues to the middle class that we used to have are long gone. Nowadays, even to get a factory job, you need to have quite a bit of education.”

That’s a far cry from L.A.’s post-World War II economy, when a thriving manufacturing and aerospace sector provided easy access to a middle-class livelihood for hundreds of thousands of workers with little more than a high-school diploma.

The end of the Cold War changed that. Between 1987 and 1996, L.A. County lost 241,000 manufacturing jobs as a result of the restructuring of the U.S. economy, according to the EDC.

And while other sectors have posted substantial gains since then notably, entertainment, high-tech, multimedia and international trade they have not yet made up for losses in manufacturing. Nor do they provide the same opportunities for those with few skills or little education.

In L.A.’s new economy, “those who have talent tend to make exceptional amounts of money, while others don’t benefit much at all,” said Joel Kotkin, senior fellow with the Pepperdine Institute for Public Policy. “You end up with a kind of skewing.”

Despite the strength of the current recovery, household incomes have been falling for most of the ’90s. In inflation-adjusted 1998 dollars, median household income in L.A. County was $39,393 in 1997 a 13 percent drop from $45,239 in 1990, the peak of the last business cycle, according to an analysis of U.S. Census data by the California Budget Project, a public policy group in Sacramento.

Though household incomes across the board have been picking up in recent years after bottoming out in 1994, the growth rate accelerates further up the economic ladder. And only the top 30 percent of households are close to recovering to their 1990 levels.

“All the data suggests that the recovery is not lifting all boats equally,” said Jean Ross, executive director of the California Budget Project.

You don’t have to be an economist or a policy expert to reach the same conclusion.

Consider Paula Barragan Ortega, a 23-year-old crew leader at Trojan Grounds, a coffeehouse on the USC campus. Ortega, who supervises 12 employees, makes $7.99 an hour and earned about $17,000 last year. With her husband’s salary as a grocery clerk, the family is just able to support their 4-month-old son, Austin.

In some ways, Ortega is lucky. Unlike other food-service workers, her job comes with benefits, including six free units a semester at USC which has enabled Ortega to take courses in broadcast journalism.

But for now, career dreams are on hold. The family, which lives in a studio apartment behind their in-laws’ house in Bell, is trying to save for an apartment of its own. Any other money left over at the end of the month goes to pay the interest on about $8,000 in credit-card debts.

“I’m either going to get a second job or declare bankruptcy. Those are my two options,” Ortega said. “Things are real tight now.”

Nor has the rising tide lifted Gail Escobar’s boat. A 36-year-old waitress at the Miramar Sheraton Hotel in Santa Monica, Escobar has seen the hotel’s occupancy rate soar in recent years as a result of the city’s tourism boom. But she has not received a raise and has experienced only a marginal jump in her tips.

“Sometimes it feels like we’re living check to check,” said Escobar, who lives in a West Hollywood apartment with her husband, a maintenance worker, and their 6-year-old son. “I lose a lot of sleep worrying about the future.”

And yet, the recovery finally appears to be reaching the lowest end of the economy, according to the L.A. County Department of Social Services, which reports a steady drop in the number of aid recipients over the past 18 months.

In March, about 1.5 million people sought aid from the county, compared with a high of 1.9 million in May 1994.

Paul Fast, a department spokesman, said that while some of the drop-off is due to welfare reform, the recovering economy and a low unemployment rate also are factors.

What’s more, Fast added, a growing number of welfare recipients are supplementing their benefits with a full- or part-time job, suggesting a growing supply of jobs at the lower end of the economy.

“Instead of depending just on welfare, they are increasing their income by working while on welfare, and getting exposure to the labor market,” said Fast. “That would seem in the long run to be the path that leads to self-sufficiency.”

Of course, whether those jobs ever lead to upward mobility remains an open question.

The number of jobs in L.A. County paying more than $40,000 a year declined by 19 percent between 1990 and 1995, the last year for which data are available. The number of jobs paying less than $20,000, by contrast, rose 7 percent, to 890,000, over the same period.

Particularly fast-growing have been the temporary help and apparel industries, said Goetz Wolff, a professor of urban planning at UCLA.

“What we have is a bipolar growth,” said Wolff. “We have continuing growth at the low end and have new growth in areas like motion pictures and securities brokerages. We are heading toward two separate economies. The rungs in the middle of the ladder are being taken out.”

And with avenues to the middle diminishing, life at the bottom is increasingly difficult.

A study by the Los Angeles city Housing Department found that two out of five rental households are paying more than 50 percent of their income for rent. Another survey found that 62 percent of L.A.’s food bank recipients say they have had to choose between paying for rent and paying for food compared to a national average of 35 percent.

“The problems of the working poor are much more severe here,” said Michael Woo, a former L.A. City Councilman and director of Los Angeles programs for the Local Initiatives Support Coalition, which serves as an intermediary between banks and neighborhood community development corporations.

“We need to work on the connections between needy communities and the prosperous new businesses that are growing,” said Woo. “While we want to congratulate the individuals and businesses that are thriving, it’s important to remember that there are thousands of individuals who are being left behind.”

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