Middle class shrinks below 50% in Silicon Valley as 1%'s incomes rocket

SAN FRANCISCO – 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.

Middle class a smaller proportion

Nationally, a middle class yearly income for a household of three people is considered to be between $42,000 and $125,000, according to the Pew Research Center. Low-income would be anything under $42,000 and upper-income is above $125,000.

In San Mateo and Santa Clara counties, both mostly suburban, 58% of households were middle class in 1989.

By 2014 that number had shrunk to 48% for San Mateo county and 47% for Santa Clara.

In urban San Francisco, 51% of households were middle class in 1989. By 2014 that number stood at 41%.

Lower-income families doing worse

While higher income households in tech-heavy Silicon Valley saw sizable growth after the end of the Great Recession in 2009, low-income households saw almost no gain in earnings during that time.

The area is economically different than much of the country in that there are more jobs and they pay better than in other regions, said Chris Hoene, executive director of the budget center.  But because housing is expensive and transit systems are weak, even with the availability of better-paying jobs than in much of the nation, low- and middle-income households fell further behind.

The silver lining is that Silicon Valley has the money to make investments that could help turn around the rising inequality. Building better transit and increasing affordable housing would go a long way towards aiding those at the bottom of the income rung, said Hoene.

Dealing with the issue is key to Silicon Valley’s future. A robust middle class is important for long-term economic growth and without it the region's economy could falter, the report found.

"We don’t want to turn around 25 years now and wonder why Silicon Valley didn’t turn out to continue being the engine of growth it had been,” Hoene said.