Filling Wage Gaps Would Increase SoCal GDP by 17%

Southern California is notably diverse, with communities and individuals originating from all over the world and contributing food, music, events and more to the culture of our cities and neighborhoods—but Southern California has a long way to go in making sure that everyone, and all genders, benefits from its immense economic power. 

The “Economic Impacts of Equity” report, published recently by the Southern California Association of Governments (SCAG), measures the economic effect of wage gaps between racial and gender groups and the potential benefit of closing those gaps. According to the report, wage equity, or closing the gaps between the pay of white male workers and the various racial and gender groups, would increase the total gross domestic product (GDP) of the six-county SCAG region by 17.0 percent.  

The “Economic Impacts of Equity” report also identifies how regional planning efforts, such as the Connect SoCal 2024 Regional Transportation Plan/Sustainable Communities Strategy, can address labor market inequity by coordinating and evaluating efforts at multiple levels of government and a diverse range of private interests. 

The Wage Gap Penalty 

Research shows that wage inequity reduces labor force participation, which decreases labor supply and increases labor cost (Buckman et al., 2021; Daly et al., 2020, Cook, 2020). The resulting smaller, shallower pool of workers also reduces innovation and economic growth (Bell et al., 2019). Research also shows that racial diversity in the workforce enhances market performance (Kline et al., 2022), so the economic gains from closing race- and gender-based wage gaps will be larger in places with more diverse workforces, such as the SCAG region, than for the rest of the country.  

According to the analysis in SCAG’s “Economic Impacts of Equity” report, the collective GDP of Ventura, Los Angeles, Orange, San Bernardino, Riverside and Imperial counties could be 17.0 percent higher if the racial and gender wage gaps were eliminated, compared to 8.4 percent for the United States and 8.5 percent for the rest of California.  

In 2021, Black workers in the SCAG region, on average, earned 60 percent of white men’s wages and 62 percent in 2022 (down significantly compared to 70 percent in 1992). Hispanic workers, the largest share of the region’s workers by race or ethnicity, earned 59 percent of white men’s wages in 2022 (up from 54 percent in 1992). In 2022, Asian workers earned 93 percent of white men’s wages. Women of all races earned 66 percent of white men’s wages in 2022 wages (up from 64 percent from 1992).  

Gains from eliminating wage inequities also vary within the SCAG region. As shown in Exhibit 6, Los Angles and Riverside counties could gain the most GDP from wage equity, with larger potential gains larger than in the rest of California and the United States because of the relative diversity of the labor force. 

The report also explores how potential gains from eliminating race and gender wage gaps have shifted in recent years. Potential gains have dropped from 20 percent in 2009 to 17 percent in 2021, owing in part to the recent reduction in wage gap shown in Exhibit 2. In contrast to the region as whole, the wage gap for women and workers of color in the inland counties of Imperial, Riverside and San Bernardino has widened slightly since the mid-2010s. 

This analysis also uses American Community Survey data to assess what share of the $234.35 billion in potential gains from equity in the SCAG region can be attributed to these differences across race and gender.  While it is expected that individuals will achieve different levels of education or prefer working more or fewer hours depending on their lifestyle or financial situation, average differences across race and gender groups should not differ. Even when accounting for differences in educational attainment and other differences shown in Exhibit 8, most of the wage gap ($155.08 billion, equivalent to 11.2 percent of the region’s GDP) cannot be explained by economic differences, suggesting that deeper historical or structural barriers have a significant role.    

Planning a Regional Solution  

As a metropolitan planning organization, SCAG plays a key role in promoting equity and inclusion in the labor market, primarily by funding projects that advance equity or securing funding for such projects. SCAG also supports equity-related work by collecting and sharing data, convening stakeholders and supporting discussions. Many of these efforts are outlined in SCAG’s Racial Equity Early Action Plan. 

Connect SoCal 2024 details specific regional planning policies and investments that contribute to equitable labor market outcomes by focusing on efficient mobility and affordable communities. Wage disparities can be enabled by structural barriers to employment opportunities, such as housing affordability, commute distances, congestion and access to public transit. Connect SoCal 2024 also proposes and develops strategies to address housing instability, improve healthcare access and reduce risks that create poverty, among other socioeconomic factors influencing disparities in the labor market.  

The “Economic Impacts of Equity” report also suggests several policy directions to close the wage gap in Southern California. Removing barriers to education attainment, by investing in the education system and providing safe ways to get to and from school, could increase the SCAG region’s GDP by more than $52 billion, for example.  

Southern California’s diversity is unmatched, but persistent wage inequity drags its economic momentum, preventing the region from reaching its full potential. SCAG has created tools and resources to help turn this shortcoming into a strength and looks forward to supporting implementation.