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Study reveals growth of income gap
McClatchy Newspapers


January 27, 2006
Friday AM

WASHINGTON - The gap between rich and poor appears to be rising again because of globalization and other market forces that are limiting wage gains for low- and middle-income workers, according to a 50-state study released Thursday.

If trends continue, the report said, income inequality is likely to deepen beyond its growth of the 1980s and 1990s, when incomes of affluent Americans grew more than three times faster than those of the low-income.

"Inequality is growing in all parts of the country," said Jared Bernstein, senior economist at the Economic Policy Institute, which conducted the study along with the Center on Budget and Policy Priorities.

California ranked sixth in income inequality, with median family income of the top 20 percent ($127,564) racing far ahead of the poorest 20 percent ($16,773).




The study also showed wide differences in the growth rate of states' income gaps since the early 1980s. Income disparity expanded by up to 50 percent in states like Arizona in the subsequent two decades, but in one state, Alaska, income inequality actually subsided.

California's growth in income disparity during the period was 16th-highest nationally. Income for the richest 20 percent grew by nearly $42,500, adjusted for inflation, while the poorest 20 percent saw their incomes go up just $1,700.

Bernstein says the income gap's growth of the last two decades stands in contrast to the 25 years immediately following World War II, in which virtually all segments of America participated equally in economic growth.

The inequality symptoms that developed in the early 1980s were briefly arrested late last decade, when a long period of full employment lifted incomes among the poor and middle-income, and the high-tech bust put a lid on the revenue streams of many well-to-do Americans.

Bernstein said recent data suggest the stage is set for a resumption of growth in income disparity. Incomes in 2003 declined 1 percent for the poorest 20 percent of Americans, according to the Congressional Budget Office, but climbed 3.7 percent for the richest 20 percent. Income for the top 5 percent grew by more than 8 percent.

"Today's unprecedented gap," said Bernstein, "is our most serious economic problem."

The issue of income equality is a hot one in both political and economic circles. Many Republicans accuse Democrats of playing "class warfare" with the issue. And some economists say the income gap in the United States - while more pronounced than most economically advanced countries - masks a good deal of mobility in which low wage-earners advance rapidly up the income ladder.

The Center on Budget and Policy Priorities and the Economic Policy Institute, which advocate economic policies that benefit the poor, both criticized the massive federal tax cuts championed by President Bush as overly tilted toward the affluent.

But the report says little about the tax cuts, instead arguing that the primary driving forces behind the expanding income gap are overwhelmingly market-driven - "long periods of high unemployment, globalization, the shrinkage of manufacturing jobs and the expansion of low-wage services jobs and immigration, as well as the lower real value of the minimum wage, and fewer and weaker unions."

The authors said states have an opportunity, in the legislative sessions now beginning in many parts of the country, to alleviate some of the income inequality by drawing on cash reserves that are building up in most state treasuries.

Elizabeth McNichol, an analyst at the Center on Budget and Policy Priorities, said states could raise or establish minimum wages, upgrade unemployment insurance systems, strengthen safety-net systems for the poor and adjust often-regressive tax systems to lighten tax burdens on the poor.

"Now is an opportune time for states to act," she said. "The choices the states make over the next couple of years could serve to widen or narrow the income gap."


Distributed to subscribers by Scripps-McClatchy Western Service.

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