December 16, 1997

Pulling Apart:
A State-by-State Analysis of Income Trends - Chapter Two
by Kathryn Larin and Elizabeth McNichol

 


II. The Long-Term Trend: The Late 1970s to the Mid-1990s


Nationwide, income inequality increased significantly during the 1970s and 1980s, a stark reversal of the trend towards lessening inequality that prevailed between World War II and the 1970s. Gaps in income between high-income families and poor families — and between high-income families and middle-income families — have widened across the United States, in every region and in virtually every state. As a group, low-and middle-income families have seen their incomes either stagnate or decline, while the incomes of the wealthiest families have continued to rise.

To assess how families with children at different income levels have fared over the past two decades, this report measures income inequality at three points in time: the late 1970s, the mid-1980s, and the mid-1990s. These periods reflect comparable points in the economic cycle. For each time period, all families with children are ranked by income and divided into five groups (or "quintiles"), each comprising of the same number of families. The average income of families in each quintile is then calculated for each of the three time periods. The change in the income held by each quintile is one way in which researchers commonly measure changes in the distribution of income over time.

Looking at the period from the late 1970s to the mid-1990s, the differences between the income trends of families at the bottom of the income distribution and the income trends of families at the top of the distribution are striking. Figure 1 below shows the number of states in which the average incomes of each fifth of the distribution rose or fell between the 1970s and the 1990s. As shown, in most states, lower- and moderate- income families experienced a decline in income, while in most states high-income families saw their incomes increase. For example, the poorest fifth of families experienced a decline in income in 44 states. The incomes of the poorest fifth rose in only 6 states. In contrast, in every state, the average incomes of the richest fifth of families increased.

 

Income Trends: Differences Between High- and Low-Income Families

In comparing the varying income trends of families with children at different points in the income distribution, perhaps the starkest contrast is between the richest fifth of families and the poorest fifth of families. Table 1 shows how families with children in the top and bottom fifths of the distribution have fared since the 1970s in each of the 50 states. The table presents both the percentage change in average incomes and the dollar change in average incomes. (The direction of most of the changes in average incomes are statistically significant at the 95 percent level of confidence. See the footnote to Table 1 for details.)

In 44 states, the poorest fifth of families with children grew poorer between the late 1970s and the mid-1990s. In 16 of those states, the income of families with children in the bottom quintile of the income distribution dropped by more than 20 percent. In 10 states — Arizona, Connecticut, Kentucky, Louisiana, Michigan, New York, Ohio, Oklahoma, West Virginia, and Wyoming — the poorest fifth of families experienced a decline in income of more than 30 percent.

In every state in the nation, by contrast, families with children in the top 20 percent of the income distribution saw their incomes swell between the late 1970s and the mid-1990s. In 31 states, the incomes of the upper fifth of families jumped by over 20 percent.

Table 1
Dollar and Percent Change in Average Incomes of
Bottom and Top Fifths of Families with Children, '78-'80 to '94-'96
 
State Bottom Fifth   Top Fifth
 
44 States Where the Bottom Fifth Grew Poorer and the Top Fifth Grew Richer
 
Alabama ($861)   -10%   $21,602 * 28%
Arizona ($5,698) * -44%   $11,136 * 12%
California ($3,265) * -27%   $29,695 * 30%
Colorado ($825)   -5%   $25,510 * 24%
Connecticut ($6,139) * -37%   $50,812 * 53%
Delaware ($811)   -6%   $27,245 * 30%
Florida ($1,776) * -19%   $26,573 * 33%
Georgia ($1,113) * -10%   $36,091 * 41%
Hawaii ($756)   -6%   $20,838 * 22%
Idaho ($1,781) * -14%   $22,276 * 27%
Illinois ($1,462) * -13%   $26,155 * 27%
Indiana ($1,804) * -14%   $33,818 * 44%
Iowa ($1,863) * -12%   $16,195 * 18%
Kansas ($3,840) * -26%   $25,916 * 31%
Kentucky ($3,655) * -33%   $19,619 * 25%
Louisiana ($2,882) * -31%   $14,517 * 17%
Maine ($449)   -4%   $16,526 * 22%
Maryland ($1,278) * -9%   $39,694 * 37%
Massachusetts ($1,753) * -14%   $41,156 * 45%
Michigan ($4,207) * -31%   $20,853 * 22%
Minnesota ($1,156)   -7%   $29,596 * 33%
Mississippi ($2,375) * -28%   $3,114   4%
Missouri ($1,587) * -13%   $15,799 * 19%
Montana ($1,230)   -12%   $7,160   9%
Nebraska ($717)   -5%   $19,618 * 24%
Nevada ($1,409)   -10%   $6,478   7%
New Hampshire ($1,571)   -10%   $29,703 * 34%
New Mexico ($2,428) * -27%   $7,352   9%
New York ($3,799) * -36%   $41,581 * 46%
North Carolina ($2,180) * -19%   $28,978 * 37%
Ohio ($4,540) * -33%   $21,101 * 23%
Oklahoma ($5,135) * -41%   $7,727   9%
Oregon ($2,583) * -21%   $12,508 * 15%
Pennsylvania ($3,235) * -24%   $37,127 * 42%
Rhode Island ($1,986) * -17%   $26,202 * 31%
South Carolina ($1,321) * -14%   $16,943 * 21%
South Dakota ($1,233)   -12%   $13,688 * 17%
Tennessee ($1,392) * -15%   $30,459 * 40%
Texas ($1,659) * -16%   $19,118 * 20%
Virginia ($1,293) * -11%   $22,044 * 23%
Washington ($1,565) * -13%   $18,237 * 19%
West Virginia ($4,978) * -44%   $12,372 * 17%
Wisconsin ($2,327) * -15%   $9,787 * 10%
Wyoming ($6,100) * -35%   $2,345   3%
 
4 States Where Incomes of the Top Fifth Grew Faster than Incomes of the Bottom Fifth
 
Arkansas $1,026 * 13%   $10,109 * 14%
New Jersey $1,280 * 10%   $44,883 * 46%
Utah $664   4%   $24,368 * 28%
Vermont $355   3%   $13,361 * 16%
 
2 States Where Incomes of the Bottom Fifth Grew Faster than the Incomes of the Top Fifth
 
Alaska $1,703 * 13%   $5,088   4%
North Dakota $1,368   12%   $4,816   6%
 
District of Columbia ($1,982) * -27%   $53,869 * 56%
 
Total U.S. ($2,504) * -21%   $26,771 * 30%
* Dollar changes marked with an asterisk are "statistically significant." That is, according to a commonly-used statistical test, we are at least 95 percent certain that the direction of the change noted (i.e., whether income rose or fell) is correct. For example, in Hawaii, we cannot say with 95 percent certitude that the $756 drop in the average income of the bottom fifth reflects a true income drop, but we can say with 95 percent certitude that the $20,838 gain in the income of the top fifth reflects a true gain. The test is important since these income data are based on samples of the population in each state. No statistical significance tests were performed on the percentage changes.

In each of the 44 states in which the incomes of the bottom fifth of families fell — the states in which the poor grew poorer — high-income families were growing richer. In Michigan, for example, the average income of the bottom fifth of families with children fell by $4,200 from the late 1970s to the mid-1990s, a drop of over 30 percent. Over the same period, Michigan's richest 20 percent of families with children saw their incomes rise by nearly $21,000, or over 21 percent. (All figures are presented in 1997 inflation-adjusted dollars.)

Average incomes of poor families did not fall in every state between the late 1970s and the mid-1990s; there are six states where the incomes of the bottom fifth of families rose over the period.

Nevertheless, income inequality increased in four of the six states in which incomes of the families in the lowest quintile rose. In three of these four states — New Jersey, Utah, and Vermont — the modest increases in the incomes of the poorest fifth of families were far smaller, as a percentage of income, than the gains made by the top fifth of families.

In Utah, for example, the average income of families in the bottom fifth of the distribution increased a modest 4 percent, or $660 between the late 1970s and the mid-1990s. Families in the top fifth of the distribution, on the other hand, saw their incomes rise by over 28 percent, or by more than $24,000.

In the remaining two states — Alaska and North Dakota — the incomes of both the poorest families and the richest families increased, but the percentage increase in the incomes of the bottom fifth of families exceeded the percentage increase for the top fifth of families, thereby reducing income inequality in those three states.

For example, in Alaska, the average income of the poorest 20 percent of families with children increased from $13,165 to $14,868 between the late 1970s and the mid-1990s, an increase of nearly 13 percent. The average income of the richest 20 percent of families with children rose from $123,938 to $129,025 over the same period, an increase of four percent. (Note that the dollar increase in income was much larger for upper-income families than for lower-income families.)

Changes in Income Gaps

One commonly used measure of income inequality is the gap between the average income of the poorest fifth of families and the average income of the richest fifth of families. The gap in income between high- and low-income families at any point in time may be measured by dividing the average income of the top quintile by the average income of the bottom quintile. This calculation provides a "top-to-bottom" income ratio. Table 2 shows the top-to-bottom ratios in all fifty states in the 1990s, and the ranking of each state. New York, ranked first, has a larger income gap between the top fifth of families with children and the bottom fifth than any other state.

There were seven states — Arizona, California, Connecticut, Florida, Louisiana, New Mexico, and New York — where the average income of the richest fifth of families was more than fourteen times as great as the average income of the bottom fifth of families. In most of these states, the average income of the bottom fifth of families with children was well below the national average.

At the other end of the spectrum, there were only five states — Iowa, North Dakota, Utah, Wisconsin, and Vermont — where the richest fifth of families had less than eight times the average income of the bottom fifth. These are the states where income was distributed least unevenly, although the gap between high-income and poor families was still quite large. In these five states, the average income of the bottom fifth of families with children was well above the national average.

Map 1

Map 1 shows the most and least unequal states as measured by the top-to-bottom ratio in the mid-1990s. Inequality is greatest in the southeastern and the southwestern states. The Midwest Plains region and northern New England are the least unequal.

Table 2
Ratio of Incomes of Top and Bottom Fifths of Families with Children, '94-'96
 
State Rank Average income of bottom fifth of families with children Average income of top fifth of families with children Top-to-bottom ratio
New York 1 $6,787 $132,390 19.5
Louisiana 2 $6,430 $102,339 15.9
New Mexico 3 $6,408 $91,741 14.3
Arizona 4 $7,273 $103,392 14.2
Connecticut 5 $10,415 $147,594 14.2
California 6 $9,033 $127,719 14.1
Florida 7 $7,705 $107,811 14.0
Kentucky 8 $7,364 $99,210 13.5
Alabama 9 $7,531 $99,062 13.2
West Virginia 10 $6,439 $84,479 13.1
Tennessee 11 $8,156 $106,966 13.1
Texas 12 $8,642 $113,149 13.1
Mississippi 13 $6,257 $80,980 12.9
Michigan 14 $9,257 $117,107 12.7
Oklahoma 15 $7,483 $94,380 12.6
Massachusetts 16 $10,694 $132,962 12.4
Georgia 17 $9,978 $123,837 12.4
Illinois 18 $10,002 $123,233 12.3
Ohio 19 $9,346 $111,894 12.0
South Carolina 20 $8,146 $96,712 11.9
Pennsylvania 21 $10,512 $124,537 11.8
North Carolina 22 $9,363 $107,490 11.5
Rhode Island 23 $9,914 $111,015 11.2
Washington 24 $10,116 $112,501 11.1
Maryland 25 $13,346 $147,971 11.1
Virginia 26 $10,816 $116,202 10.7
Kansas 27 $10,790 $110,341 10.2
Oregon 28 $9,627 $97,589 10.1
New Jersey 29 $14,211 $143,010 10.1
Indiana 30 $11,115 $110,876 10.0
Montana 31 $9,051 $89,902 9.9
South Dakota 32 $9,474 $93,822 9.9
Idaho 33 $10,721 $104,725 9.8
Delaware 34 $12,041 $116,965 9.7
Arkansas 35 $8,995 $83,434 9.3
Colorado 36 $14,326 $131,368 9.2
Hawaii 37 $12,735 $116,060 9.1
Missouri 38 $11,090 $100,837 9.1
Alaska 39 $14,868 $129,025 8.7
Wyoming 40 $11,174 $94,845 8.5
Minnesota 41 $14,655 $120,344 8.2
Nebraska 42 $12,546 $102,992 8.2
Maine 43 $11,275 $92,457 8.2
New Hampshire 44 $14,299 $116,018 8.1
Nevada 45 $12,276 $98,693 8.0
Iowa 46 $13,148 $104,253 7.9
Wisconsin 47 $13,398 $103,551 7.7
Vermont 48 $13,107 $97,898 7.5
North Dakota 49 $12,424 $91,041 7.3
Utah 50 $15,709 $110,938 7.1
 
District of Columbia   $5,293 $149,508 28.2
 
Total U.S.   $9,254 $117,499 12.7

Changes in inequality over time can be assessed by comparing the top-to-bottom ratios of states in the 1990s to their values in the 1970s. Table 3 compares the top-to- bottom ratios for each of the 50 states in the late-1970s to the same ratios in the mid-1990s. Inequality has grown substantially over the period. In the late 1970s, there was no state where high income families had average incomes ten or more times larger than the average incomes of low-income families. By the mid-1990s, 30 states had "top-to-bottom" ratios of 10 or greater. The last column of Table 3 shows the extent to which the top-to-bottom ratios grew over the two-decade period. The rank of each state shows how the growth in inequality in that state compared to the growth in inequality in other states.

The greatest increase in income inequality occurred in Connecticut. In the late 1970s, the richest fifth of families with children had about 6 times the income of the poorest fifth of families on average. By the mid-1990s, the richest fifth of families had over 14 times the income of families in the bottom fifth of the distribution. The increased inequality resulted in part from a drop in the income of families in the bottom quintile of the distribution from $16,554 to $10,415 on average — a decline of more than $6,100 — between the late 1970s and the mid-1990s. Meanwhile, the average income of families at the top of the distribution in Connecticut increased from $96,782 to $147,594, an increase of more than $50,000.

Changes in Income Shares

Another way to measure changes in income inequality over time is to look at changes in the share of total family income held by each fifth of families in the income distribution.

Figure 2 above shows the number of states where the share of income held by each quintile rose or fell between the late 1970s and the mid-1990s. As shown, in virtually all states, the share of income held by the bottom 80 percent of families fell over the period. By contrast, in all but one state, the percentage of the states' total family income held by the richest families increased since the 1970s.

 

Table 3
Change in Ratio of Incomes of Top and Bottom Fifths of Families
with Children, '78-'80 - '94-'96
State Rank Top-to- bottom ratio 78-80 Top-to- bottom ratio '94-96 Percent Change in Top/bottom ratio
Connecticut 1 5.8 14.2 142.4% *
New York 2 8.6 19.5 127.4% *
West Virginia 3 6.3 13.1 107.7% *
Arizona 4 7.1 14.2 99.9% *
Kentucky 5 7.2 13.5 86.5% *
Pennsylvania 6 6.4 11.8 86.3% *
Oklahoma 7 6.9 12.6 83.7% *
Ohio 8 6.5 12.0 83.1% *
California 9 8.0 14.1 77.4% *
Kansas 10 5.8 10.2 77.2% *
Michigan 11 7.1 12.7 77.0% *
North Carolina 12 6.8 11.5 68.8% *
Louisiana 13 9.4 15.9 68.8% *
Massachusetts 14 7.4 12.4 68.6% *
Indiana 15 6.0 10.0 67.2% *
Tennessee 16 8.0 13.1 63.7% *
Florida 17 8.6 14.0 63.3% *
Wyoming 18 5.4 8.5 58.5% *
Rhode Island 19 7.1 11.2 57.1% *
Georgia 20 7.9 12.4 56.9% *
New Mexico 21 9.5 14.3 49.9% *
Maryland 22 7.4 11.1 49.7% *
New Hampshire 23 5.4 8.1 49.2% *
Idaho 24 6.6 9.8 48.1% *
Illinois 25 8.5 12.3 45.5% *
Oregon 26 7.0 10.1 45.5% *
Mississippi 27 9.0 12.9 43.5% *
Texas 28 9.1 13.1 43.4% *
Minnesota 29 5.7 8.2 43.1% *
Alabama 30 9.2 13.2 42.5% *
South Carolina 31 8.4 11.9 40.9% *
Delaware 32 7.0 9.7 39.1% *
Virginia 33 7.8 10.7 38.2% *
Washington 34 8.1 11.1 37.8% *
Missouri 35 6.7 9.1 35.5% *
Iowa 36 5.9 7.9 35.2% *
New Jersey 37 7.6 10.1 32.6% *
South Dakota 38 7.5 9.9 32.3% *
Colorado 39 7.0 9.2 31.2% *
Nebraska 40 6.3 8.2 30.6% *
Wisconsin 41 6.0 7.7 29.6% *
Hawaii 42 7.1 9.1 29.1% *
Maine 43 6.5 8.2 26.6% *
Montana 44 8.0 9.9 23.4% *
Utah 45 5.8 7.1 22.7% *
Nevada 46 6.7 8.0 19.3% *
Vermont 47 6.6 7.5 12.7%  
Arkansas 48 9.2 9.3 0.8%  
North Dakota 49 7.8 7.3 -6.0%  
Alaska 50 9.4 8.7 -7.8%  
           
District of Columbia   13.1 28.2 114.8% *
           
Total U.S.   7.7 12.7 64.6% *
* The direction of the changes in the top/bottom ratio marked with an asterisk are statistically significant at the 95 percent level of confidence. That is, one can say with 95 percent certainty that the increases shown in the table are true increases in income inequality.

Table 4 below shows the share of income held by the top and bottom fifths of families with children in each of the states in the late 1970s and in the mid-1990s. Alaska, Arkansas, and North Dakota were the only states in which the share of income held by the bottom fifth of families increased between the 1970s and the 1990s. In each of the remaining 47 states, the share of income held by the poorest fifth of families decreased. The share held by the top fifth of families increased in every state except North Dakota.

 

Income Trends: Differences between High- and Middle-Income Families

It was not only the poor as a group that failed to share in the income growth that has occurred since the late 1970s. In most states, families in the middle of the distribution were also left behind compared to families at the top of the income distribution.

Table 5 shows the dollar and percentage change in the average incomes of families with children in the middle and top fifths of the income distribution between the late 1970s and the mid-1990s.

 

Table 4
Share of State Income Held by Bottom and Top Fifths
of Families with Children, '78-'80 through '94-'96
  Share of state income held by bottom fifth   Share of state income held by top fifth
State '78-'80 '94-'96 '78-'80 '94-'96
         
Alabama 4.4% 3.4% 40.9% 44.8%
Alaska 4.4% 4.9% 41.6% 42.5%
Arizona 5.6% 3.4% 39.8% 48.7%
Arkansas 4.5% 4.7% 41.2% 43.3%
California 5.1% 3.4% 40.6% 48.6%
Colorado 5.8% 4.9% 40.4% 44.8%
Connecticut 6.4% 3.3% 37.6% 46.3%
Delaware 5.5% 4.6% 38.5% 44.5%
Florida 4.8% 3.4% 41.2% 47.3%
Georgia 5.1% 3.8% 40.1% 47.6%
Hawaii 5.5% 4.7% 38.5% 43.2%
Idaho 5.8% 4.6% 38.6% 44.7%
Illinois 4.7% 3.7% 39.5% 45.4%
Indiana 6.1% 4.6% 36.2% 45.7%
Iowa 6.4% 5.4% 37.3% 42.4%
Kansas 6.5% 4.4% 37.5% 44.6%
Kentucky 5.4% 3.4% 38.8% 46.3%
Louisiana 4.4% 3.1% 41.5% 48.9%
Maine 6.0% 5.0% 38.9% 41.3%
Maryland 5.3% 4.1% 39.3% 45.9%
Massachusetts 5.3% 3.7% 38.8% 45.6%
Michigan 5.4% 3.5% 38.7% 44.3%
Minnesota 6.5% 5.1% 37.3% 42.1%
Mississippi 4.6% 3.5% 41.8% 45.2%
Missouri 5.8% 4.7% 39.0% 43.1%
Montana 5.0% 4.4% 39.9% 43.4%
Nebraska 5.9% 5.1% 37.3% 42.2%
Nevada 5.7% 5.1% 38.7% 40.9%
New Hampshire 6.8% 5.2% 37.1% 42.5%
New Jersey 5.2% 4.3% 39.2% 43.4%
New Mexico 4.4% 3.4% 42.1% 48.1%
New York 4.7% 2.6% 40.7% 50.7%
North Carolina 5.7% 3.9% 38.7% 45.0%
North Dakota 5.1% 5.5% 40.1% 40.0%
Ohio 5.9% 3.7% 38.3% 44.8%
Oklahoma 5.8% 3.6% 39.8% 45.6%
Oregon 5.4% 4.3% 37.8% 43.9%
Pennsylvania 6.0% 3.9% 38.1% 45.8%
Rhode Island 5.3% 4.0% 38.1% 44.5%
South Carolina 4.9% 3.8% 41.2% 44.7%
South Dakota 5.4% 4.2% 40.4% 42.0%
Tennessee 5.0% 3.6% 39.9% 47.4%
Texas 4.5% 3.7% 41.3% 48.0%
Utah 6.6% 6.0% 38.1% 42.1%
Vermont 6.0% 5.5% 40.0% 40.9%
Virginia 5.1% 4.2% 39.5% 45.4%
Washington 5.0% 4.0% 40.0% 44.7%
Wyoming 6.8% 4.9% 36.6% 41.2%
         
District of Columbia 3.6% 2.1% 47.3% 59.7%
         
Total U.S. 5.2% 3.7% 39.8% 46.6%

 

 

Table 5
Dollar and Percentage Change in Average Incomes of Middle and Top Fifths
of Families with Children, '78-'80 to '94-'96
State

Middle fifth

 

Top fifth

 
25 States Where the Middle Fifth Grew Poorer and the Top Fifth Grew Richer
 
Arizona ($9,060) * -22%   $11,136 * 12%
California ($2,799) * -6%   $29,695 * 30%
Delaware ($286)   -1%   $27,245 * 30%
Hawaii ($1,454) * -3%   $20,838 * 22%
Idaho ($275)   -1%   $22,276 * 27%
Indiana ($1,975) * -5%   $33,818 * 44%
Iowa ($1,497) * -3%   $16,195 * 18%
Kansas ($930)   -2%   $25,916 * 31%
Kentucky ($2,486) * -7%   $19,619 * 25%
Louisiana ($5,034) * -13%   $14,517 * 17%
Michigan ($538)   -1%   $20,853 * 22%
Mississippi ($2,964) * -9%   $3,114   4%
Montana ($2,688) * -7%   $7,160   9%
Nebraska ($456)   -1%   $19,618 * 24%
Nevada ($738)   -2%   $6,478   7%
New Mexico ($4,680) * -14%   $7,352   9%
New York ($1,465) * -4%   $41,581 * 46%
Ohio ($1,142) * -3%   $21,101 * 23%
Oklahoma ($4,291) * -11%   $7,727   9%
Oregon ($4,854) * -11%   $12,508 * 15%
Texas ($4,652) * -11%   $19,118 * 20%
Virginia ($2,186) * -5%   $22,044 * 23%
Washington ($2,146) * -5%   $18,237 * 19%
West Virginia ($5,222) * -14%   $12,372 * 17%
Wyoming ($6,762) * -14%   $2,345   3%
 
24 States Where Incomes of the Top Fifth Grew Faster than Incomes of the Middle Fifth
 
Alabama $3,588 * 10%   $21,602 * 28%
Alaska $1,127   2%   $5,088   4%
Arkansas $613   2%   $10,109 * 14%
Colorado $1,630 * 4%   $25,510 * 24%
Connecticut $4,764 * 10%   $50,812 * 53%
Florida $1,590 * 5%   $26,573 * 33%
Georgia $606   2%   $36,091 * 41%
Illinois $151   0%   $26,155 * 27%
Maine $4,093 * 11%   $16,526 * 22%
Maryland $3,923 * 8%   $39,694 * 37%
Massachusetts $4,482 * 10%   $41,156 * 45%
Minnesota $4,718 * 10%   $29,596 * 33%
Missouri $282   1%   $15,799 * 19%
New Hampshire $3,273 * 8%   $29,703 * 34%
New Jersey $10,385 * 22%   $44,883 * 46%
North Carolina $2,845 * 8%   $28,978 * 37%
Pennsylvania $2,176 * 5%   $37,127 * 42%
Rhode Island $1,508 * 4%   $26,202 * 31%
South Carolina $1,036 * 3%   $16,943 * 21%
South Dakota $3,973 * 11%   $13,688 * 17%
Tennessee $1,303 * 4%   $30,459 * 40%
Utah $3,308 * 8%   $24,368 * 28%
Vermont $6,126 * 17%   $13,361 * 16%
Wisconsin $1,909 * 4%   $9,787 * 10%
 
1 State Where Incomes of the Middle Fifth Grew Faster than Incomes of the Top Fifth
 
North Dakota $2,344 * 6%   $4,816   6%
 
District of Columbia ($1,607) * -5%   $53,869 * 56%
 
Total U.S. ($714) * -2%   $26,771 * 30%
               
* Dollar changes marked with an asterisk are statistically significant. The direction of the change is known with 95 percent certainty. See the footnote to Table 1 for details.

 

Changes in Income Gaps

The gap in income between the middle class and high-income families for a given time period can be measured in the same way that the gap in income between poor and high-income families is measured: by dividing the average income of the top fifth of families by the average income of the middle fifth of families to find a "top-to-middle" ratio. Table 6 shows the top-to-middle ratio in all fifty states for the most recent time period.

In the mid-1990s, the gap between high-income and middle class families was the widest in eight states — Arizona, California, Florida, Georgia, Louisiana, New Mexico, New York, and Texas — where the average incomes of the richest fifth of families was more than three times as large as the average incomes of the middle fifth of families. In California, for example, the middle fifth of families had average income of $40,312 while the richest fifth of families had average income of $127,719.

Five of the eight states with the smallest top-to-middle ratios in the mid-1990s were in the Midwest and Mountain Plains region. The states with the smallest top-to-middle ratios were Maine, Minnesota, Nevada, North Dakota, South Dakota, Vermont, Wisconsin, and Wyoming.

The income gaps shown in Table 6 were not always so great. Since the 1970s, there has been an increase in the top-to-middle ratio in almost every state. Table 7 compares the top-to-middle ratios in all fifty states in the late-1970s to the top-to-middle ratios in the mid-1990s.

Between the late 1970s and the mid-1990s, the gap between the average incomes of families in the middle 20 percent of the distribution and families in the top 20 percent increased in every state except North Dakota and Vermont. The states are ranked in order, starting with the state where the increase in the income gap is the greatest. New York is ranked first, as the gap between middle class and high-income families increased more there than in any other state. Other states in which the income gap between middle class and high-income families widened by more than 35 percent over the last two business cycles are Indiana, Arizona, California, Georgia, Connecticut, West Virginia, Texas, and Pennsylvania.

In the late 1970s, there was not a single state where the average income of families in the top quintile of the distribution was two and a half times as great as the average income of families in the middle quintile. By the mid-1990s, there were 40 states where the gap was this wide.

 

Table 6
Ratio of Incomes of Top and Middle Fifths of Families
with Children, '94-'96
State Rank Average income of middle fifth of families Average income of top fifth of families Top-to-middle ratio
New York 1 $39,255 $132,390 3.4
Arizona 2 $32,177 $103,392 3.2
California 3 $40,312 $127,719 3.2
Louisiana 4 $32,771 $102,339 3.1
Texas 5 $36,243 $113,149 3.1
New Mexico 6 $29,557 $91,741 3.1
Georgia 7 $40,248 $123,837 3.1
Florida 8 $35,987 $107,811 3.0
Tennessee 9 $36,148 $106,966 3.0
Indiana 10 $38,807 $110,876 2.9
Kentucky 11 $35,175 $99,210 2.8
Connecticut 12 $52,576 $147,594 2.8
Virginia 13 $41,464 $116,202 2.8
Maryland 14 $52,992 $147,971 2.8
Pennsylvania 15 $44,670 $124,537 2.8
Oklahoma 16 $34,237 $94,380 2.8
Massachusetts 17 $48,333 $132,962 2.8
Colorado 18 $47,797 $131,368 2.8
South Carolina 19 $35,188 $96,712 2.8
West Virginia 20 $30,962 $84,479 2.7
Mississippi 21 $29,685 $80,980 2.7
Washington 22 $41,277 $112,501 2.7
Delaware 23 $42,939 $116,965 2.7
Illinois 24 $45,457 $123,233 2.7
Kansas 25 $40,752 $110,341 2.7
North Carolina 26 $40,057 $107,490 2.7
Idaho 27 $39,381 $104,725 2.7
Ohio 28 $42,528 $111,894 2.6
Alabama 29 $37,799 $99,062 2.6
Rhode Island 30 $42,593 $111,015 2.6
Oregon 31 $37,588 $97,589 2.6
Hawaii 32 $44,895 $116,060 2.6
Arkansas 33 $32,384 $83,434 2.6
Michigan 34 $45,599 $117,107 2.6
Montana 35 $35,332 $89,902 2.5
New Jersey 36 $56,718 $143,010 2.5
Missouri 37 $40,370 $100,837 2.5
New Hampshire 38 $46,524 $116,018 2.5
Nebraska 39 $41,535 $102,992 2.5
Utah 40 $44,846 $110,938 2.5
Alaska 41 $52,488 $129,025 2.5
Iowa 42 $42,439 $104,253 2.5
Minnesota 43 $49,919 $120,344 2.4
South Dakota 44 $39,620 $93,822 2.4
Maine 45 $39,886 $92,457 2.3
Wyoming 46 $41,073 $94,845 2.3
Nevada 47 $43,313 $98,693 2.3
Vermont 48 $43,114 $97,898 2.3
North Dakota 49 $41,408 $91,041 2.2
Wisconsin 50 $47,571 $103,551 2.2
 
District of Columbia   $29,076 $149,508 5.1
 
Total U.S.   $40,721 $117,499 2.9

 

Table 7
Change in Ratio of Incomes of Top and Middle Fifths
of Families with Children, '78-'80 to '94-'96
State Rank Top-to-middle ratio '78-'80 Top-to-middle ratio '94-96 Change in Top/Middle ratio
New York 1 2.2 3.4 51.2% *
Indiana 2 1.9 2.9 51.2% *
Arizona 3 2.2 3.2 43.6% *
California 4 2.3 3.2 39.3% *
Georgia 5 2.2 3.1 39.0% *
Connecticut 6 2.0 2.8 38.7% *
West Virginia 7 2.0 2.7 36.9% *
Texas 8 2.3 3.1 35.8% *
Pennsylvania 9 2.1 2.8 35.5% *
Tennessee 10 2.2 3.0 34.8% *
Louisiana 11 2.3 3.1 34.4% *
Kansas 12 2.0 2.7 33.7% *
Kentucky 13 2.1 2.8 33.5% *
Massachusetts 14 2.1 2.8 31.4% *
Delaware 15 2.1 2.7 31.2% *
Virginia 16 2.2 2.8 29.9% *
Oregon 17 2.0 2.6 29.5% *
Idaho 18 2.1 2.7 27.9% *
North Carolina 19 2.1 2.7 27.2% *
Florida 20 2.4 3.0 26.8% *
Ohio 21 2.1 2.6 26.6% *
Maryland 22 2.2 2.8 26.5% *
Illinois 23 2.1 2.7 26.5% *
Rhode Island 24 2.1 2.6 26.3% *
New Mexico 25 2.5 3.1 25.9% *
Hawaii 26 2.1 2.6 25.8% *
Washington 27 2.2 2.7 25.6% *
New Hampshire 28 2.0 2.5 25.0% *
Nebraska 29 2.0 2.5 24.9% *
Michigan 30 2.1 2.6 23.1% *
Iowa 31 2.0 2.5 22.6% *
Oklahoma 32 2.2 2.8 22.6% *
Minnesota 33 2.0 2.4 20.1% *
Colorado 34 2.3 2.7 19.9% *
Wyoming 35 1.9 2.3 19.4% *
New Jersey 36 2.1 2.5 19.1% *
Utah 37 2.1 2.5 18.7% *
Missouri 38 2.1 2.5 17.7% *
South Carolina 39 2.3 2.7 17.7% *
Montana 40 2.2 2.5 16.9% *
Alabama 41 2.3 2.6 15.7% *
Mississippi 42 2.4 2.7 14.4% *
Arkansas 43 2.3 2.6 11.6% *
Maine 44 2.1 2.3 9.3%  
Nevada 45 2.1 2.3 8.8%  
Wisconsin 46 2.1 2.2 6.0%  
South Dakota 47 2.2 2.4 5.3%  
Alaska 48 2.4 2.5 1.9%  
North Dakota 49 2.2 2.2 -0.4%  
Vermont 50 2.3 2.3 -0.7%  
 
District of Columbia   3.1 5.1 65.0% *
 
Total U.S.   2.2 2.9 31.8% *
* The direction of the changes in the top/bottom ratio marked with an asterisk are statistically significant at the 95 percent level of confidence. That is, one can say with 95 percent certainty that the increases shown in the table are true increases in income inequality.

 

Adjusting for Family Size

Despite overwhelming evidence that income inequality has grown substantially over the past two decades, some critics have argued that the increased income disparities do not reflect real declines in the well-being of poor families, but simply reflect the fact that families are smaller now than they were two decades ago. According to this argument, if low-income families are getting smaller over time, the decline in the average income of low-income families may not represent a decline in the families' well-being. For example, a low-income family comprising of two adults and one child with an income of $10,000 could be considered better-off than a family comprising of two adults and two children with an income of $11,000.

The analysis presented in this paper does not explicitly adjust for family size. However, because the analysis is restricted to families with children, rather than all families, the degree to which changes in family size affect the results are minimal.

One way to adjust for family size is to divide every family's income by the poverty line. Because the poverty line varies by family size, this calculation yields a measure of "adjusted" family income. Families can be ranked by their "adjusted" family income rather than by their unadjusted family income as is done in this report. In this way, families are ranked by a measure of income-per-person rather than by total family income. The following table shows how the average adjusted family income and how the average unadjusted family income of each fifth of families in the United States has changed since the 1970s.

Change in Incomes of Fifths of Families with Children, 1970s to 1990s
  Lowest Fifth Second Fifth Middle Fifth Fourth Fifth Top Fifth
Adjusted -20.7% -10.7% -1.5% 6.6% 31.4%
Unadjusted -21.3% -10.8% -1.7% 7.1% 29.5%

Adjusting for family size has virtually no impact on the estimated trend in income inequality. This is because the average size of families with children remained virtually unchanged over the past two decades. In the late 1970s, the average size of families with children was 4.1, whereas in the mid-1990s, the average size of families with children was 3.9, a decline of less than five percent. As a result, adjusting for changes in family size does not change the major conclusion of this analysis: over the past two decades, income disparities have grown in the United States.

Changes in Income Shares

Trends in the share of income held by families in the middle quintile of the income distribution also show that middle-income families are falling behind the richest fifth of families in the vast majority of states.

Table 8 shows the share of income held by families in the middle and top fifths of the income distribution in the late 1970s and the mid-1990s. In the United States as a whole, the share of income held by the middle fifth of families fell from 18.2 percent to 16.1 percent. In nearly all states, the share of income held by the middle fifth of families followed the national trend. The share of income held by the middle fifth of families fell in every state except Alaska and Vermont.

As noted earlier, the top fifth of families saw its share increase in virtually all states. In the United States as a whole, the share of total family income held by the richest 20 percent of families with children increased from 39.8 percent to 46.6 percent over the past two decades.

 

Table 8
Share of State Income Held by the Middle and Top Fifths of Families
with Children, '78-'80 through '94-'96
  Share of state income held by middle fifth   Share of state income held by top fifth
State '78-'80 '94-'96 '78-'80 '94-'96
Alabama 18.0% 17.1% 40.9% 44.8%
Alaska 17.3% 17.3% 41.6% 42.5%
Arizona 17.8% 15.1% 39.8% 48.7%
Arkansas 17.9% 16.8% 41.2% 43.3%
California 17.9% 15.3% 40.6% 48.6%
Colorado 17.6% 16.3% 40.4% 44.8%
Connecticut 18.6% 16.5% 37.6% 46.3%
Delaware 18.6% 16.3% 38.5% 44.5%
Florida 17.4% 15.8% 41.2% 47.3%
Georgia 18.1% 15.5% 40.1% 47.6%
Hawaii 18.7% 16.7% 38.5% 43.2%
Idaho 18.5% 16.8% 38.6% 44.7%
Illinois 18.4% 16.8% 39.5% 45.4%
Indiana 19.2% 16.0% 36.2% 45.7%
Iowa 18.6% 17.3% 37.3% 42.4%
Kansas 18.5% 16.5% 37.5% 44.6%
Kentucky 18.4% 16.4% 38.8% 46.3%
Louisiana 17.9% 15.6% 41.5% 48.9%
Maine 18.3% 17.8% 38.9% 41.3%
Maryland 17.8% 16.4% 39.3% 45.9%
Massachusetts 18.5% 16.6% 38.8% 45.6%
Michigan 18.5% 17.2% 38.7% 44.3%
Minnesota 18.6% 17.4% 37.3% 42.1%
Mississippi 17.5% 16.6% 41.8% 45.2%
Missouri 18.4% 17.3% 39.0% 43.1%
Montana 18.3% 17.0% 39.9% 43.4%
Nebraska 18.8% 17.0% 37.3% 42.2%
Nevada 18.5% 17.9% 38.7% 40.9%
New Hampshire 18.6% 17.1% 37.1% 42.5%
New Jersey 18.5% 17.2% 39.2% 43.4%
New Mexico 17.1% 15.5% 42.1% 48.1%
New York 18.2% 15.0% 40.7% 50.7%
North Carolina 18.4% 16.8% 38.7% 45.0%
North Dakota 18.2% 18.2% 40.1% 40.0%
Ohio 18.4% 17.0% 38.3% 44.8%
Oklahoma 17.7% 16.5% 39.8% 45.6%
Oregon 18.9% 16.9% 37.8% 43.9%
Pennsylvania 18.5% 16.4% 38.1% 45.8%
Rhode Island 18.5% 17.1% 38.1% 44.5%
South Carolina 17.6% 16.2% 41.2% 44.7%
South Dakota 18.0% 17.7% 40.4% 42.0%
Tennessee 18.2% 16.0% 39.9% 47.4%
Texas 18.0% 15.4% 41.3% 48.0%
Utah 18.3% 17.0% 38.1% 42.1%
Vermont 17.5% 18.0% 40.0% 40.9%
Virginia 18.3% 16.2% 39.5% 45.4%
Washington 18.4% 16.4% 40.0% 44.7%
Wyoming 18.9% 17.8% 36.6% 41.2%
         
District of Columbia 15.2% 11.6% 47.3% 59.7%
         
Total U.S. 18.2% 16.1% 39.8% 46.6%