S u m m a r y

w w w. p p i c . o r g

The Great Recession
and Distribution of
Income in California

Sarah Bohn ● Eric Schiff

S u m m a r y

T
he effects of the Great Recession have been felt far and wide. According to official mea-
sures, the recession ran from December 2007 until June 2009. During that time, California
experienced record unemployment, a housing market bust, sizable budget shortfalls,

and downturns across nearly all major industries in the state. These problems have continued
well past the technical end of the recession.

California’s families have been hit hard by the Great Recession and its aftermath. Family
income has declined across the spectrum, with lower incomes seeing the steepest losses
(Table 1). The gap between upper- and lower-income families is now wider than ever. And the
number of families in the middle-income range is shrinking. Specifically, we find:

• Total income for the median family in California fell more than 5 percent between 2007 and
2009 (the official recession years) and an additional 6 percent between 2009 and 2010.

• At the lowest income level—the 10th percentile—family income fell more than 21 per-
cent in total. At the 90th percentile, family income fell 5 percent.

• After adjusting for California’s higher cost of living, just less than half—47.9 percent—
of individuals were in families that could be considered middle income in 2010.

As these findings suggest, the Great Recession has brought us to new extremes. These
include record high measures of inequality, near-record lows in the proportion of middle-

Justin sullivan/Get t y imaGes

http://www.ppic.org/main/home.asp

http://www.ppic.org/main/home.asp

The Great Recession and Distribution of Income in California2

w w w. p p i c . o r g

income families, and record high unemployment and unemployment duration. Through
2010, past the technical end of the recession, there has been no evidence of recovery in
income across the distribution.

Unemployment and underemployment—working fewer hours or weeks per year—were
hallmarks of the Great Recession, and California is still facing high unemployment numbers.
We find that even for working families, income fell during the Great Recession for the middle
of the distribution and below. Underemployment, rather than a decline in wages, appears to
have driven this income drop. This suggests that policies that create jobs and promote full-
time employment, rather than those that target wage rates, are more likely to be effective in
aiding the recovery of family income.

We do not yet know the timing of the recovery from the Great Recession and how that
recovery will be shared across the income distribution. If previous recovery patterns repeat
themselves, it is likely that the lower half of the income distribution will recover much more
slowly than the upper half, potentially allowing already record-high income inequality to per-
sist. The erosion of low and middle incomes raises concerns about the equity of economic
opportunity in the state.

The most important factor driving the gap between high- and low-income workers is edu-
cation. Looking ahead, California may need to find innovative ways to promote opportunity
through education, especially so that middle- and lower-income families are not left behind.

Please visit the report’s publication page to find related resources:
www.ppic.org/main/publication.asp?i=965

Table 1. Family income fell in every income category between 2007 and 2010

Family income ($) Percentage change

2007 2008 2009 2010
2007–2009

(official recession)
2007–2010

(actual peak to trough)

10th percentile 19,100 17,000 16,200 15,000 –15.2 –21.5

25th percentile 34,600 34,200 32,400 31,200 –6.4 –10.0

Median 68,400 66,000 64,700 61,100 –5.4 –10.7

75th percentile 122,000 122,300 115,600 112,400 –5.3 –7.9

90th percentile 188,300 187,500 183,700 179,100 –2.5 –4.9

95th percentile 246,000 232,100 235,600 226,300 –4.2 –8.0

SOURCE Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.

NOTES: Family income is adjusted to 2010 dollars and normalized to account for family size. See Technical Appendix A for details.

http://www.ppic.org/main/home.asp

http://www.ppic.org/main/publication.asp?i=965

http://www.ppic.org/content/pubs/other/1211SBR_appendix.pdf