The study, which defies the perception of surging prosperity in the state, blames the lag in family income in California on two factors. The report notes that the economic downturn at the beginning of the decade lasted longer and cut deeper here than in other parts of the United States.

But it also points to a widening gap between highly trained workers who are benefiting from the state's burgeoning sectors -- such as technology and finance -- and California's vast and growing pool of poorly educated workers, many from other countries.

The data cited in the study run counter to the notion that California is overrun with well-heeled dot-com millionaires, investment bankers and entertainment executives.

The state does have plenty of highly paid workers. It's simply that they are swamped by a larger group of low-wage workers, said Mary Daly, an economist with the Federal Reserve Bank of San Francisco who authored the study.

``The perception is that there is a lot of wealth in California,'' Daly said. ``But, as a whole, California families have fallen behind their counterparts in the rest of the U.S.''

Moreover, the split in California between high-income and low-income segments is wider than in the nation as a whole, the Federal Reserve study shows. Simply put, California has a larger proportion of rich and a larger proportion of poor people than the rest of the United States.

By 1998, the latest year for which data were available, ``a greater number of Californians lived in poverty, a smaller (relative) number were in the middle class, and a majority had family incomes below those of comparable families living outside of California,'' the report said.

California has grown faster than the nation as a whole over the last two years, a period the data do not cover. But it's unlikely that the state has closed the family income gap, Daly said. Nor has the split between high-income and low-income sectors been significantly narrowed.

Since the days of the Forty-Niners, the Golden State has been a place where people have come to get rich. And, indeed, for most of the state's history, Californians were better off than people elsewhere in the nation. In 1989, for example, the state's median family income was $25,760, 7.9 percent higher than that in the rest of the nation.

But by 1998, California median family income was $24,668, 4.5 percent less than the median family income outside the state.

During the 1990s, California family income fell not only in relation to the rest of the country but also in absolute terms. While median income outside the state rose by more than 8 percent between 1989 and 1998, median family income in California fell by 4.2 percent, the report notes.

Eleven years ago, California families had higher incomes, after adjusting for inflation, than comparable families elsewhere in the country at every point on the income scale.

By 1998 though, at the bottom and middle levels of income in California, median family income was well below the median in the rest of the nation at equivalent points on the income scale. But California families in the 70th percentile or above in income distribution ``had real incomes higher than equivalent families living outside of California,`` the study said.

One reason the fortunes of California families fell during the 1990s was because the economic slump early in the decade was so severe, the study said. Total payroll jobs in the state didn't surpass the pre-recession peak until 1996, putting California about two years behind the nation as a whole.

But changes in California's population during the decade also brought median family income down. Large numbers of immigrants from Latin America, Asia and other developing regions entered California during the 1990s. Most of them lacked skills that commanded high pay and many wound up taking low-wage jobs.

``There was a change in the composition of the California population toward younger and less educated workers,'' Daly said. ``A primary factor creating these changes appear to be an influx of individuals from other countries.''

This shift in California's population accounted for between one- third and one-half of the state's decline in family income relative to the rest of the nation, the Federal Reserve report said.

Daly noted one bright spot. Huge demand for skilled labor in the state means that, if unskilled workers can be trained, plenty of jobs will be available for them.

``Over time, people at the lower end will move into those jobs,'' boosting their incomes, she said.

©2000 San Francisco Chronicle

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