By Elizabeth C. McNichol
January 30, 2000
Hardly a week goes by that we don't hear more good news about the U.S. economy's robust growth. But Americans have a sharp instinct for the uneasy truth behind the happy numbers. Three out of four respondents to a recent Harris poll said they felt that the benefits of economic growth were not being evenly distributed.
To determine who is benefitting from the current prosperity and who is being left behind, the Center on Budget and Policy Priorities and the Economic Policy Institute recently analyzed state-by-state trends in income growth in a study called "Pulling Apart." Our analysis found that even the strong economic growth in recent years has done little to turn around the long-term trend toward increasing income disparities. In sum, the incomes of the poor and middle class have declined or stagnated while the incomes of the highest-income families continued to grow. Since the late 1980s, in two-thirds of the states the income gap between the richest and poorest families grew. In close to three-fourths of the states, income gaps between the top fifth and the middle fifth of families grew over the last decade.
Over the longer term - since the late 1970s - the report found that income disparities between high- and low-income families increased in all but four states. The average income of the poorest fifth of families nationwide actually fell - by almost $900 after adjusting for inflation. Our analysis is based on before-tax income data for families from the Census Bureau's March Current Population Survey. While all available income measures have some limitations, our finding of a wide and growing income gap is not affected by the particular measure used.
For example, the Census Bureau's definition of income does not include near-cash benefits such as food stamps and housing assistance. The small understatement of income for low-income families that results is outweighed by another factor: The Census data also exclude capital gains income, an overwhelming share of which accrues to families at the top of the scale.
Our report examines trends in pre-tax income, not after-tax income or wealth. Other studies show even more dramatic disparities in wealth. Most of the tremendous increase in the value of assets - property, stocks and the like - seen in recent years has been concentrated among America's richest families. Congressional Budget Office data on after-tax income show a similarly dramatic rise in inequality between the 1970s and the late 1990s.
Some observers discount the income-disparity statistics by noting that there is substantial income mobility over a lifetime. Some families do, of course, have low incomes for only a few years, quickly moving into the middle class. But studies have shown that the majority of low-income families have low income for many years. Even after more than 20 years, almost half of the poorest workers remain at the bottom of the income distribution. Futher, as income disparity has increased, there has not been a corresponding increase in income mobility.
This country was built on the ideal that those who contribute to the nation's economic growth should reap some of the benefits. For many years, they did. Over the last two decades, however, the benefits of growth have been skewed in favor of the wealthiest people. The consequences of these trends are particularly dire for the poorest families, a group that has not shared in the growing prosperity. Recent research on the effect of poverty on children has shown that, controlling for all other factors, poverty can have a substantial effect on child and adolescent well-being.
Both economic trends and government policy have contributed to growing income inequality. Policies such as raising the minimum wage, strengthening unemployment insurance and supports for low-wage workers such as transportation or child care and reforming regressive state-tax systems can help moderate the income divide.
Elizabeth C. McNichol is co-author of "Pulling Apart" and director of the state fiscal project at the Center on Budget and Policy Priorities.
FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
