COVID-19 Casts a Shadow on California and LA, Exacerbating Income Inequality

Back in June, UCLA economists predicted a serious boom in economic growth for the U.S. and California. Three months later, their outlook for both the nation and the state looked far less rosy in a new report, which blamed a plateau in vaccination rates and the impact of the delta variant for the change.

“Consumer caution and supply constraints mean that what could have been a couple of years of blockbuster economic growth looks instead to become years of good, solid, but not spectacular growth,” the September 2021 UCLA Anderson Forecast concluded.

Economists also warned of a state that is becoming increasingly unequal as tech entrepreneurs see their personal wealth grow while low-income residents fail to see gains.

“One striking aspect of the recession and recovery is how it has disproportionately hit lower income Californians,” the forecast’s director Jerry Nickelsburg wrote in an analysis of the findings. “Thus, it has been creating an increase in inequality in the state.”

Nickelsburg predicted that housing demand and low-interest rates would fuel a “relatively rapid return of homebuilding,” however there was no indication that the boost would come anywhere close to remedying the state’s housing crisis. “Our expectation is for 123K net new units in 2021 and continue to grow to 139K for 2023,” said Nickelsburg. “Needless to say, this level of home building means that the prospect for the private sector building out of the housing affordability problem over the next three years is nil.”

UCLA economist William Yu delved further into income inequality in a companion report that explored COVID-19 and inequality in greater Los Angeles. The region has seen the second-most regional job losses since the pandemic began, led only by the North Bay. And in L.A., “low-wage jobs, in particular in restaurants, had more job loss than other sectors,” said Yu.

“So while we’ve heard about this so-called K-shaped recovery, it means those high-wage sectors — which had been doing very well before the pandemic — are also doing very well in the recovery, as opposed to the low wage sectors. They’ve had a slower recovery,” said Yu.

Relative to the state, Yu also says L.A.’s “growth has been slower.” The economist pointed to two causes for the apparent gap, including that “high growth drivers for the California economy” in the San Francisco Bay Area (a.k.a the tech giants) provide “the whole California number a boost.” Another factor is the high cost of living in cities like L.A.

“Compared to a mature metro like Los Angeles, Inland Empire is doing well over the past few years, in terms of jobs, recovery growth and housing. One of the reasons is because of the relative lower cost of living, so you see a lot of people moving to those kinds of inland, cheaper areas to have a bigger house,” added Yu.