Wall Street Journal
WEDNESDAY, DECEMBER 17, 1997
Income Gap Between Rich and Poor Grows Nationwide
By Michael M. Phillips Staff Reporter of The Wall Street Journal
WASHINGTON -- The gulch between rich and poor families has grown wider over˙
the last two decades in virtually every state in the Union, but the trend˙
has eased somewhat during the economic boom of the 1990s, a new study
reported.
The economic distance between rich and poor families has grown most sharply˙
in Connecticut and New York since the late 1970s, while the poor have gaine˙
d
ground in Alaska and North Dakota over the same period. During the last
decade, poor families in Arkansas, Colorado and Minnesota have caught up th˙
e
most, while poor Arizonans have been falling behind the fastest.
The study, by the liberal-leaning Center for Budget and Policy Priorities,˙
shows that the incomes of the richest fifth of families with children
outpaced the incomes of the poorest fifth in 48 states and the District of˙
Columbia between the late-1970s and the mid-1990s. In 44 states and
Washington, D.C., the poor saw their incomes shrink during that period.
"The main finding of this study, and most surprising, is the increase of
income inequality is so pervasive in almost every state," said Kathryn A.˙
Larin, a policy analyst at the center and one of the report's authors. "Ove˙
r
the long term, the gap has been widening between rich and poor."
Interestingly, however, during the last decade the poorest fifth gained
ground on the richest fifth in 13 states. One such state was Minnesota,
where the poorest fifth had an average annual income of $14,655 during the˙
1994-96 period, while the richest fifth earned an average of $120,344. That˙
ratio -- the rich earned 8.2 times as much as the poor -- ranked Minnesota˙
the state with the 10th-lowest amount of income inequality.
"Most of our poor are working poor, so they tend to be a little better off,˙
"
said Matt Shands, director of the nonprofit Minnesota Budget Project in St.˙
Paul.
Economists generally blame the long-term growth in inequality on several
factors: technological changes that make highly skilled workers better
rewarded, the weakening of unions, the decline in many manufacturing
industries and the rise of service jobs, and, to a lesser degree,
competition from foreign producers and poorly paid immigrants.
But the authors of the new report concede they are hard-pressed for an
all-encompassing explanation for the variation among the states.
Maine, which has relatively low inequality, has lost manufacturing jobs in˙
shoes and textiles, but perhaps at a slower pace than many other states --˙
meaning there are still well-paying jobs available to for high-school
graduates. Maine also was relatively poor in the 1970s, with many residents˙
engaged in low-paying fishing and logging jobs. "A job at Wal-Mart paying $˙
7
an hour with some benefits isn't a half-bad job in the Maine context," said˙
Christopher St. John, executive director of the nonprofit Maine Center for˙
Economic Policy in Augusta.
Even in Maine, however, the gap between rich and poor has grown over the
last two decades. The top fifth of Maine families with children earned 6.5˙
times more than the bottom fifth in 1978-80. By 1994-96 that ratio had
jumped to 8.2.
In New York, the top fifth of families earned 19.5 times as much as the
poorest fifth in 1994-96. Only the District of Columbia saw sharper income˙
differences. Possible reasons: Upstate New York has sat out the 1990s
economic boom, and New York City is a traditional entry point for lowpaid˙
immigrants.
But the situation in New York may be even more extreme than the study
reveals. The Census Bureau data used by the authors don't include such
noncash benefits as food stamps in the incomes of the poorest residents.
More importantly, however, at the upper end the data exclude capital-gains˙
income and individual earnings beyond the first $100,000. With Wall Street˙
booming, the rich in New York are probably substantially richer than the
study indicates. "This is probably even worse than it looks," said Deborah˙
A. Ellwood, senior policy analyst at the Fiscal Policy Institute in Albany,˙
N.Y.
California, which has seen many new jobs created in low-wage apparel
manufacturing, and Arizona, with its elevated school-dropout rate combined˙
with an influx of educated workers from other states, also rank high in
inequality.
The authors concede that states can do little to address the underlying
economic trends that have contributed to the income gap. But they advise
that states take steps to ameliorate the symptoms, including adoption of
more progressive taxes and gearing welfare reform to move former recipients˙
into jobs with income-growth potential.
Journal Link: For the full text of the Center for Budget and Policy
Priorities study, see The Wall Street Journal Interactive Edition at
http://wsj.com
The Wall Street Journal via DowVision © 1997 Dow Jones & Company, Inc. A˙
ll
Rights Reserved.
