For Immediate Release: January 26, 2006

Press Release: Income Inequality Grew Across The Country Over The Past Two Decades: Early Signs Suggest Inequality Now Growing Again After Brief Interruption

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In most states, the gap between the highest-income families and poor and middle-income families grew significantly between the early 1980s and the early 2000s, according to a new study by the Center on Budget and Policy Priorities and the Economic Policy Institute.  The study is one of the few to examine income inequality at the state as well as national level. 

The incomes of the country’s richest families have climbed substantially over the past two decades, while middle- and lower-income families have seen only modest increases.  This trend is in marked contrast to the broadly shared increases in prosperity between World War II and the 1970s. 

In addition, while income inequality declined following the bursting of the stock and high-tech bubbles in 2000 — both of which were quite costly to the highest-income families — early national-level data suggest that inequality began growing again in 2003.  Incomes at the top have rebounded strongly from the stock market correction, while the negative effects of the recent recession on low- and moderate-income families have lasted longer than usual.  Thus, it appears that the two-decade-long trend of worsening income inequality has resumed.

The study is based on Census income data that have been adjusted to account for inflation, the impact of federal taxes, and the cash value of food stamps, subsidized school lunches, and housing vouchers.  Income from capital gains is also included.  The study compares combined data from 2001-2003 with data from the early 1980s and early 1990s, time periods chosen because they stand as comparable low points of their respective business cycles.  Its findings include:

In 38 states, the incomes of the bottom fifth of families grew more slowly than the incomes of the top fifth of families between the early 1980s and the early 2000s.  In these 38 states, the incomes of the richest grew by an average of $45,800 (62 percent), while the incomes of the poorest grew by only $3,000 (21 percent)  In other words, the poorest families — who saw an increase in purchasing power of only $143 per year — have not fared nearly as well as the richest families during this period.  In only one state — Alaska — did the incomes of the low-income families grow faster than the incomes of the top fifth.

In 39 states, the incomes of the middle fifth of families grew more slowly than the incomes of the top fifth of families between the early 1980s and the early 2000s.  In no state did the income gap (degree of income inequality) between middle- and high-income families narrow during this period.

Within the top fifth of families, the wealthiest families enjoyed the highest income growth over the past two decades.  In the 11 states that are large enough to permit this calculation, the incomes of the top 5 percent of families rose between 66 percent and 132 percent during this period.  This is faster than the income growth among the top fifth of families as a whole in these states— and much faster than the income growth among the bottom fifth of families in these states, which ranged from 11 percent to 24 percent.

The five states with the largest income gap between the top and bottom fifths of families are New York, Texas, Tennessee, Arizona, and Florida.  Generally, income gaps are larger in the Southeast and Southwest and smaller in the Midwest, Great Plains, and Mountain states.  Income gaps tend to be larger in states where incomes in the bottom fifth are below the national average, and to be smaller in states where incomes in the bottom fifth are above the national average.

The five states with the largest income gaps between the top and middle fifths of families are Texas, Kentucky, Florida, Arizona, and Tennessee. 

Income inequality increased rapidly during the 1980s.  During the 1990s exceptionally low unemployment produced relatively broad-based wage growth during the latter part of the decade.  This broad-based growth ended with the 2001 economic downturn.  Growth in real wages for low- and moderate-income families began to slow and by 2003 wages began to decline.  Thus far, the recovery from the downturn has not been strong enough to generate the kind of income gains among low- and middle-income families seen in the late 1990s.

Growing Inequality Has Costly Consequences

“Growing income inequality harms this nation in a number of ways,” stated Jared Bernstein, Senior Economist, Economic Policy Institute and co-author of the report.  “When income growth is concentrated at the top of the income scale, the people at the bottom have a much harder time lifting themselves out of poverty and giving their children a decent start in life.”

“A fundamental principle of our economic system is that the benefits of economic growth will flow to those responsible for their creation. When how fast your income grows depends on your position in the income scale, this principle is violated.  In that sense, today’s unprecedented gap between the growth of the typical family’s income and productivity is our most pressing economic problem.” 

States Can Partially Offset Trend Toward Larger Income Gaps

The biggest cause of rising income inequality over the past two decades has been the erosion of wages for the 70 percent of workers with less than a college education.  That erosion, in turn, reflects long periods of higher-than-average unemployment, globalization, the shift from manufacturing jobs to low-wage service jobs, immigration, the weakening of unions, and the decline in the minimum wage.  More recently, even college-educated workers have experienced real declines in wages, in part because of offshore competition.

While many of these economic factors are largely outside the control of state policymakers, “there’s a lot that states can do to mitigate the effects of increasing inequality,” Elizabeth McNichol, Senior Fellow, Center on Budget and Policy Priorities and co-author of the report noted.  Possible steps include raising the state minimum wage, strengthening supports for low-income working families, and reforming the unemployment insurance system.  In addition, states can pursue tax policies that partially offset the growing inequality of pre-tax incomes.

TABLE A:
TOP TEN STATES FOR SELECTED INCOME INEQUALITY MEASURES

Greatest Income
Inequality Between
the Top and the Bottom,
Early 2000s

Greatest Incom
 Inequality Between
the Top and the Middle,
Early 2000s

1. New York

1. Texas
2. Texas 2. Kentucky
3. Tennessee 3. Florida
4. Arizona 4. Arizona
5. Florida 5. Tennessee
6. California 6. New York
7. Louisiana 7. Pennsylvania
8. Kentucky 8. North Carolina
9. New Jersey 9. New Mexico
10. North Carolina 10. California

Greatest Increase
 in Income Inequality Between
the Top and the Bottom,
Early 1980s to Early 2000s

Greatest Increases
in Income Inequality
Between the Top and the Middle,
Early 1980s to Early 2000s

1. Arizona 1. Kentucky
2. New York 2. Pennsylvania
3. Massachusetts 3. West Virginia
4. Tennessee 4. Indiana
5. New Jersey 5. Hawaii
6. West Virginia 6. Texas
7. Connecticut 7. Tennessee
8. Hawaii 8. North Carolina
9. Kentucky 9. Arizona
10. South Carolina 10. New York

Greatest Increases
in Income Inequality
Between the Top and the Bottom,
Early 1990s to Early 2000s

Greatest Increases
in Income Inequality
Between the Top and the Middle,
Early 1990s to Early 2000s

1. Tennessee 1. Kentucky
2. Connecticut 2. Pennsylvania
3. Washington 3. North Carolina
4. North Carolina 4. Indiana
5. Utah 5. Tennessee
6. Texas 6. Texas
7. West Virginia 7. West Virginia
8. Pennsylvania 8. Vermont
9. Florida 9. New Jersey
10. Maine 10. Connecticut

State Contacts

Alabama
Alabama Arise
Kimble Forrister
334-832-9060
kimble@alarise.org

Missouri
Missouri Budget Project
Amy Blouin
314-652-1400
ablouin@mobudget.org
Arizona
Children's Action Alliance
Dana Naimark
602-266-0707
602-882-5755 (cell)
dnaimark@azchildren.org
New Jersey
New Jersey Policy Perspective
Jon Shure
609-393-1145 ext. 2
njpp@njpp.org
Arkansas
Arkansas Advocates for Children and Families
Kathryn Hazelett
501-371-9678 ext. 105
khazelett@aradvocates.org
New Mexico
New Mexico Voices for Children
Cheryl Gooding
505-401-8709 (cell)
California
California Budget Project
Jean Ross
916-444-0500
jross@cbp.org
New York
Fiscal Policy Institute
Trudi Renwick
518-786-3156
renwick@fiscalpolicy.org
Colorado
Fiscal Policy Institute (Colorado Center on Law and Policy)
Kathy A. White
303-573-5669 ext. 303
kwhite@cclponline.org
North Carolina
North Carolina Budget and Tax Center
John Quinterno
919-856-3185
john@ncjustice.org
Connecticut
Connecticut Voices for Children
Doug Hall
203-498-4240
doug@ctkidslink.org
North Carolina
North Carolina Budget and Tax Center
Sorien Schmidt
919-856-2151
Sorien@ncjustice.org
Connecticut
Voices for Children
Shelley Geballe
203-498-4240
yalie4567@aol.com
Ohio
Policy Matters Ohio
Amy Hanauer
216-931-9922
ahanauer@policymattersohio.org
District of Columbia
DC Fiscal Policy Institute
Ed Lazere
202-408-1080
lazere@dcfpi.org
Oklahoma
Community Action Project
Heather Hope
918-382-3265
hhope@captc.org
Georgia
Georgia Budget and Policy Institute
Alan Essig
404-420-1324
aessig@gbpi.org
Oregon
Oregon Center for Public Policy
Mike Leachman
503-873-1201
mleachman@ocpp.org
Idaho
United Vision for Idaho
Judith Brown
208-882-0492
jlbrown@turbonet.com
Pennsylvania
Keystone Research Center
Stephen Herzenberg
717-255-7181
herzenberg@keystoneresearch.org
Illinois
Center for Tax and Budget Accountability
Chrissy Mancini
312-332-1481
cmancini@ctbaonline.org
Rhode Island
Poverty Institute
Ellen Frank
(401) 456-2752
efrank@ric.edu
Illinois
voices for Illinois Children
Maneesha Date
312-516-5568
acourter@voices4kids.org
Tennessee
Tennesseans for Fair Taxation
Brian Miller
888-671-5188 ext. 14
brian@yourtax.org
Indiana
Indiana Institute for Working Families
Charles Warren
317-815-9561
chazwarr@sbcglobal.net
Texas
Center for Public Policy Priorities
Lynsey Kluever
512-320-0222 ext. 112
kluever@cppp.org
Iowa
Iowa Policy Project
Mike Owen
319-338-0773
ipp@Lcom.net
Utah
Voices for Utah Children
Karen Crompton
801-364-1182
karen@utahchildren.net

Maine
Maine Center for Economic Policy
Ed Cervone
207-622-7381
ecervone@mecep.org

Vermont
Public Assets Institute
Paul A. Cillo
802-472-6222
cpaulvt@aol.com
Maryland
Progressive Maryland
Sean Dobson
301-495-7004
sean@progressivemaryland.org
Washington
Washington State Budget and Policy Center
Remy Trupin
206-625-9790 ext. 11
remyt@budgetandpolicy.org
Massachusetts
Massachusetts Budget and Policy Center
Jeff McLynch
617-426-1228 ext. 103
jmclynch@massbudget.org
Wisconsin
Wisconsin Council on Family and Children
Jon Peacock
608-284-0580 ext. 307
jpeacock@wccf.org
Michigan
Michigan League for Human Services
Sharon Parks
517-487-5436
sparks@mlan.net
Wisconsin
Center on Wisconsin Strategy (COWS)
Joel Rogers
608-263-3889
Minnesota
Minnesota Council of Nonprofits
Minnesota Budget Project
Nan Madden
612-709-6948 (cell)
nan@mncn.org
 

# # # #

The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.

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