Opinion Columns & Blogs

February 20, 2014

Huge inequalities in income not inevitable

Two reports released this week take a look at widening income inequality in the U.S. from a state and local level with some eye-opening revelations.

Two reports released this week take a look at widening income inequality in the U.S. from a state and local level with some eye-opening revelations.

The state level report, “The Increasingly Unequal States of America,” by the Economic Analysis and Research Network, shows from a historical perspective that such wide gaps between incomes of the country’s wealthiest and its poor don’t have to be that way. In fact, the report notes, inequality declined in this country in the four decades between the 1940s and the 1970s, so the extreme levels of inequality seen today are far from inevitable.

As the report’s authors note aptly, “This was a period in which a rising tide really did lift all boats.” The lowest wage earner as well as the highest paid CEO saw similar growth in incomes. And this occurred during a time of widespread racial, ethnic and gender job discrimination.

But with lopsided income growth between 1979 and 2007, every state saw a rise in the top 1 percent’s share of income. In Nevada, Wyoming, Michigan and Alaska, only the top 1 percent saw rising incomes. In South Carolina, more than half (54 percent) of all income growth went to the top 1 percent. In North Carolina, it was 35 percent.

That boost for the top reversed a trend of income growth that followed the Great Depression. The share of income held by the top 1 percent declined in every state but one (Alaska) between 1928 and 1979. When the recession hit in 2007, all income levels saw a decline. But as the recovery began in 2009, lopsided income growth emerged again with the top 1 percent getting a huge share of income growth.

Between 2009 and 2011, the 1 percent got all the income growth in 26 states including North Carolina and South Carolina. In the Tar Heel state in 2011, the top 1 percent made 17.9 times as much as the bottom 99 percent – an average of $702,503 vs. $39,145. That pales against what top earners in Connecticut and New York make versus the bottom 99 percent – 40 times as much. But that’s still a big gap.

A Brookings Institute report, “All Cities Are Not Created Unequal,” takes note of how inequality is playing out in the nation’s 50 biggest cities. Charlotte didn’t fare so well, coming in 20th among U.S. big cities with the largest income inequality (bottom 20 percent averaged $21,998; for top 5 percent, it was $219,126), and with the ninth largest increase in the income gap in the five years between 2007 and 2012. Given the low income mobility in Charlotte documented in a different study, this comes as little surprise.

Atlanta ranked No. l in income inequality (bottom 20 percent, $14,850; top 5 percent, $279,827) and San Francisco was No. 2 ($21,313 vs. $353,576). Raleigh, by the way, came in 42nd on income inequality.

The Brookings report points out something that should interest Charlotte leaders. Many of the cities with increases in income inequality did so not because the rich made huge gains but because the low-income were hit particularly hard during the recession and are not being helped much during the recovery. Cities that don’t tackle those issues directly may hurt their future growth. Said senior fellow Alan Berube: “[A city] may struggle to maintain mixed-income school environments that produce better outcomes for low-income kids... And it may fail to produce housing and neighborhoods accessible to middle-class workers and families.”

The EARN analysis of income growth over several decades shows that the problem of widening inequality should not simply focus on the financial sector. Rising inequality and huge increases in incomes for the top 1 percent affect every state. The earlier era of a “rise in incomes among all groups was characterized by a rising minimum wage, low levels of unemployment... and a cultural and political environment in which it was unthinkable for executives to receive outsized bonuses while laying off workers,” writes authors Estelle Sommeiller and Mark Price. “Policy choices and cultural forces have combined to put downward pressure on the wages and incomes of most Americans even as productivity has risen.”

The lopsided income growth has had a big negative impact on the middle class, the authors note. “Between 1979 and 2007, had the income of the middle fifth of households grown at the same rate as overall average household income, it would have been $18,897 higher in 2007 – 27 percent higher than it actually was. In other words, rising inequality imposed a tax of 27 percent on [middle income households]... Increased inequality may eventually reduce inter-generational income mobility.”

That “eventually” has already come to Charlotte and many other cities nationwide. With better policies, we can reverse this trend.

Related content



Editor's Choice Videos