As Silicon Valley boomed after the recession, its middle class shrunk, creating one of the widest gaps in the nation between the ultra-wealthy and everyone else.
Here, fewer than 50% of households are now middle class and half of all income gains flowed to the top 1% of earners, said a new report released Wednesday.
At the same time, housing prices skyrocketed while incomes at the lower end of the spectrum were stagnant.
The three county region of Santa Clara, San Mateo and San Francisco, home to employees from hundreds of tech companies including Facebook, Google and Apple, is a far more unequal place that it was a quarter of a century ago.
The report, Inequality and Economic Security in Silicon Valley, was produced by the non-profit, non-partisan California Budget & Policy Center, based in Sacramento, Calif. It looked at income equality in Silicon Valley from 1989 to 2014, the last year for which full data was available.
In San Mateo county, the average income of the top 1% earners climbed 36% between 2009 and 2013, to $4.2 million, meaning that sliver of the population took home 46 times more pay than the average of the bottom 99%.
In Santa Clara county, the average income of the top 1% of households increased 83% to $2.7 million. That was 30 times more than other households in the county.
For San Francisco, which is both a county and a city, the average income of the top 1% rose 51%, to $2.7 million. That was 43 times the average income of the bottom 99% of city residents.
While income inequality is an issue nationwide, in Silicon Valley it’s become a chasm that could affect the nation’s center for tech innovation long term, the report cautioned.
Could affect? I think that ship has sailed. What’s worse is that this extreme inequality is spreading to other areas where overpaid techies build gigantic homes, like Austin, Portland, and Seattle. What poor people do in these places is have ever-longer commutes, now reaching two hours for the service workers in the Bay Area.
Speaking of such things, for as much as free trade fundamentalists love to talk about Asia, they ignore the gargantuan income inequality problems in those industrializing countries that have now reached Latin American levels.
The more recent increase in Asia’s income inequality is another potential disaster.
Strong growth has seen hundreds of millions of people lifted out of poverty in Asia but, since the beginning of the 1990s, that growth has been accompanied by a dramatic increase in income inequality.
Income inequality in the region’s mega economies, China and India, is now at Latin American levels.
More worrying is the inequality of opportunity that has accompanied it: the dual labour markets with unskilled workers in “informal sector” poorly paid with no opportunity for training; the limited access of lower-income individuals to health care, education and financial services.
In India, the IMF says, there are large gaps between the top and the bottom of the income distribution in educational attainment, access to health care and access to finance, while at least 70 per cent of non-agricultural workers are employed in the informal sector.
There is roughly the same reliance on the informal labour market in Indonesia and The Philippines, and similar gaps in access to education in Cambodia and in access to financial services in Indonesia, The Philippines and Vietnam.
A temporary increase in income inequality plays a positive role in economic development and poverty reduction, because it induces under-employed rural workers to relocate to the cities.
But entrenched income inequality is likely to undermine political stability and economic growth. We have seen that most spectacularly in Thailand.
This has the potential to be a huge problem, as we have seen in the political turmoil in Thailand over the last decade, which is fundamentally a class war between the poor on one side and the rich and the military on the other. This income inequality is not sustainable if Asian nations want long-term stability. Which is also true for the United States.