The underlying forces that have led to these labor market trends include technological change, international competition, immigration, and deunionization. Many economists believe that technological change has benefited educated workers who are able to implement new technology and has harmed less-educated workers who may be replaced by mechanized production. The effect of technological innovation on California workers may be more pronounced than in the nation. The cost of a low-skilled workforce is higher in the United States than in other countries, particularly developing countries. Thus, the United States increasingly imports manufactured products and textiles, lowering the labor market demand for low-skilled U.S. workers.
Immigrants can adversely affect the wage distribution by raising the number of low-wage workers.
Furthermore, by increasing the competition for low-skill employment, immigration can lead to a reduction in the wages offered to natives with low skills. The decline in the power of unions has reduced the bargaining power of labor with the likely effect of lowering the wages of labor relative to that of management. The sharp rise in income inequality in California beginning in the late 1980s is probably explained, in part, by the same forces that caused the strong recession of the early 1990s. In addition to cuts in defense spending, suggested causes of the severe recession in the state include a decline in residential building, a fall in commercial aircraft orders, and a reduction in spending relative to income. The effect of each of these factors on the distribution of income remains to be studied.