NCPA - National Center for Policy Analysis

California's Class Divide

May 9, 2012

Over the past decade, as California consolidated itself as a bastion of modern progressivism, the state's class chasm has widened considerably.  More than almost any other state, California's wealthy continue to thrive in a downturned economy while its poor suffer from high unemployment rates.  The result is one of the most class-stringent parts of the country with a near-nonexistent middle class, says Joel Kotkin, the Distinguished Presidential Fellow in Urban Futures at Chapman University.

  • From 2007 to 2010, income among California families in the 10th percentile of earners plunged 21 percent, while the national figure was 14 percent.
  • Further, by 2010, California families in the 90th percentile had incomes 12 times higher than the incomes of families in the 10th -- the highest ratio ever recorded in the state, and significantly higher than the national ratio.

While Californians enjoyed demonizing the wealthy during the height of the Occupy Wall Street movement, they need only thank their state lawmakers for their current predicament.  This can be seen first in their onerous labor regulations structure.

  • California labor laws, a recent U.S. Chamber of Commerce study revealed, are among the most complex in the nation.
  • The state has strict rules against noncompetition agreements, as well as an overtime regime that reduces flexibility.
  • Rules for recordkeeping and rest breaks are likewise more stringent than in other states.
  • The labor code's provisions on everything from discrimination to employee screening have, according to the Chamber of Commerce, created "a cottage industry of class actions."
  • California's legal climate is the fifth-worst in the nation, says the Institute for Legal Reform.

Furthermore, these burdensome regulations compound an already-negative tax climate.

  • In 1994, California placed 35th in the Tax Foundation's ranking of states with the lightest tax burdens on business.
  • Today, it has plummeted to 48th, with only New York and New Jersey looking worse.
  • Local taxes and fees have made five California cities among the nation's 20 most expensive business environments.

These state idiosyncrasies have made California toxic for businesses, driving their operations to other state and overseas.  The true losses of this trend are blue collar workers, who face the brunt of high unemployment rates.

Source: Joel Kotkin, "The New Class Warfare," City Journal, Spring 2012.

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