Despite the Inland Empire’s economic growth over the past generation, residents in the region have not, on average, enjoyed rising incomes. Americans, on average, double their ability to purchase goods—their real income—about once every 35 years. Californians have done even better. In 2008, California’s (real) per capita personal income was around $43,000, while the United States averaged around $36,500. Hence the average Californian ended up with 18% more than the average American over the past four decades. But in that time, residents of the Inland Empire have not kept pace. Following a period of growth in per capita real income in the 1980s, overall living standards in the Inland Empire have not changed: in fact, in 2007, real per capita income levels were approximately the same as they were in 1987. This represents 0% growth over the last 20 years.

At first glance, it is not clear why per capita income in the Inland Empire would be stagnant: the region is often portrayed as one that has experienced an economic boom. And, in fact, output figures confirm that the Inland Empire has seen substantial growth in overall economic activity in recent years. Data on real GDP for the Inland Empire first became available starting in 2001, so we can compute growth rates back to 2002. The growth in output in the Inland Empire was remarkably high through 2007, hitting almost 12% in 2004, nearly four times the U.S. average. By comparison, the highest growth rate in real GDP the United States has experienced in the past fifty years was only about seven percent in 1984, and before that one must look back to the 1950s to find a comparable rate. When the recession hit in 2007, Inland Empire growth rates converged with those of California and the United States at roughly 2%, revealing how disproportionately the Inland Empire has been affected by the recent downturn.  But prior to the recession, the Inland Empire was doing remarkably well in terms of overall economic output.

Nevertheless, this expansion did not translate into rising per capita income because, in the Inland Empire, growth in output has not exceeded population growth.

Rapid Population Growth
When population changes at a low and steady pace, changes in per capita income generally mirror changes in output per worker, but dramatic population growth in a region makes it necessary to examine per capita measures for a more complete picture of a region’s economic strength.  As seen in the graph on the right, from 2001 to 2007, the Inland Empire’s population grew by roughly 25%, almost four times the rate of California and the U.S. This massive population influx is largely a result of emigration from Greater Los Angeles due to the availability of more affordable housing in the Inland Empire.

We note one caveat associated with comparing real GDP with real personal income: GDP is a measure of goods produced in a given region, while real income represents wages and salaries earned by the residents of that region. Connecticut, for example, is the state with the highest per capita income, resulting from the fact that many of its residents work in the Greater New York area. Roughly 25% of Inland Empire residents commute to Greater Los Angeles for work, creating a notable discrepancy between income and output, which we examine in the  section on unemployment. Nonetheless, changes in per capita income do still reflect variations in the area’s economy overall, and so should be considered.

Per capita growth rates of income—that is, the annual change in real incomes for workers—have fluctuated in the roughly the same cyclical fashion for the Inland Empire, the State of California, and the United States. With some exceptions, all three regions have followed a similiar path of booms and busts, and at least for California and the United States, post-recession growth rates were high enough to exceed the losses to per capita income. But a closer look reveals that across the board, per capita income growth rates have been generally lower for the Inland Empire than for California and the United States, especially in the 1990s. Whereas other regions were able to recover from recessionary contractions and continue overall per capita income growth, the Inland Empire did not, falling behind in nearly every cycle.

Economic Cycles
The recession of the early 1990s dealt the Inland Empire a heavy blow. While the nation as a whole experienced an economic downturn, the Inland Empire suffered disproportionate losses. The region experienced negative growth of six percent in the recession of 1990-91, compared to negative three percent for California and less than negative two percent for the nation as a whole. This recession was caused in part by the shifts in federal spending after the end of the Cold War. In the early 1990s, the federal government reduced defense spending and scaled back or shut down many military bases. Locally, the most striking example was the closing of George Air Force Base in the Victor Valley. While federal grants softened the blow, this closure and others like it cost the region jobs and income in the 1990s.

By contrast, when California as a whole was hit hard by the 2001 recession, the Inland Empire actually experienced small positive growth in per capita income. A look at the San Jose-San Francisco-Oakland combined statistical area helps explain this anomaly. The bursting of the dot-com bubble disproportionately affected Silicon Valley and other technology-concentrated regions of the Bay Area. But because the Inland Empire has a smaller tech industry, it was not as severely impacted.

The Inland Empire’s economy fared well during much of the 2000s, but its per capita income growth rates were still low, due to downward pressure from the region’s population boom. As a result, the region could not catch up with state or national income averages. Moreover, while the Inland Empire largely escaped the fallout from the tech bust early in the decade, it remained susceptible to a recession in the service, housing, and construction sectors—that is, a recession just like the current one.

Demographic Factors and Prospects for the Future
An important factor for the Inland Empire’s income stagnancy is demographic. Much of the region’s population growth over the past two decades consisted of migrants from the Greater Los Angeles area who fell at the lower range of the income distribution.  Many could not afford to buy a home where they lived, thus ventured inland for more affordable options.  The demographic trends can be seen in other socio-economic indicators, as well: at present, only 25% of the people living in the Inland Empire have a college education, compared to nearly 40% in California.  In part due to these factors, most Inland Empire residents are not employed in professional or business services, even if they commute.  Instead, the region’s new residents gravitated toward the service and construction industries, both of which are traditionally low-paying jobs.

The Inland Empire thus became dominated by low-wage manufacturing, construction, and transportation and distribution sector companies, which account for almost 30% of the region’s total output. Viewed another way, ten of the Inland Empire’s top-25 industries pay less than $25,000 in average employee salary. Looking at the Inland Empire economy by sector, we see that from 1990 to 2003, 80% of the Inland Empire’s job growth was in the service industry which accounts for approximately 19% of the region’s GDP. Moreover, by 2007, construction comprised roughly 8% of the total GDP in the Inland Empire, as compared to roughly 4% in the United States and in California. As a result, the abrupt end of the housing bubble and the surplus of real estate led to dramatic cuts in the construction and housing industries, devastated the Inland Empire economy. This recession, unlike others, has hit the region at its core.

The industries of wholesale and retail trade, as well as manufacturing and transportation, may provide some hope for the coming years.  Together, these sectors comprise another 30% of the total GDP in the Inland Empire, which is not surprising, given that the Inland Empire houses some of the largest manufacturers’ distribution centers in the nation, such as those for Toyota and Nestlé, which we will discuss in more detail in the coming sections. Once domestic demand eventually increases and trade in the form of imports, exports, and the distribution of manufactured goods picks up, the Inland Empire finally may see some relief from the recession and begin again its attempt to catch up with the rest of the state’s and the country’s living standards.