In many states, the recovery is making the income gap worse

November 18, 2013

 


A sign showing a foreclosed home in Texas for sale in August 2006. (David J. Phillip/Associated Press.)

The income gap in America has been widening for decades and the modest three-year recovery did little to change that, according to new Census data.

The new data suggest that despite modest recoveries in many states, the middle class has been shrinking while households have been added in the lowest and highest income brackets. In many states and nationally, the highest income brackets saw more growth than the lowest, but households in the middle brackets continued to decline. The state-by-state data compare incomes from a pair of three-year periods: 2007 through 2009, a span that included the Great Recession, and 2010 through 2012, a period that included the ongoing and modest recovery.

For years, the wealthiest 1 percent have amassed income more quickly than the rest. From 1979 through 2007, for example, the top 1 percent of households saw income grow by 275 percent, according to a nonpartisan Congressional Budget Office study. Compare that to the bottom fifth of households, which saw income gains of only 18 percent over that time. Recent Nobel Prize winner for economics Robert Shiller, who is known for creating a closely tracked home-price index, last month called income inequality “the most important problem that we are facing now today.” And just last week, President Obama’s nominee to lead the Federal Reserve, Janet Yellen, called income inequality “an extremely difficult and to my mind very worrisome problem.”

Though rare, the recovery was strong and reduced inequality in some states, such as North Dakota, where an oil boom has provided a sustained economic boost. There, the number of households in the lowest half of income brackets shrank, while more joined the highest income brackets, a trend that suggests broad upward mobility. But in most states—and nationally—the data show the income gap worsening. In Michigan, for example, more than 65,000 households fell out of the middle-income brackets. That loss was counterbalanced by the addition of some 38,000 households, but only at the lowest and highest income levels.

That was true in many states: The number of middle-income households shrank while the number of low- and upper-income households grew. In many states, more upper-income households were added than lower-income ones—a positive economic sign not entirely unexpected during a recovery from such a severe downturn—but the middle class still shrank.

But even despite the recovery, that wasn’t always the case. In California, where the total number of households grew between the two periods, more than 70,000 dropped out of two middle-income brackets. That loss was more than offset, but only by growth at the extremes. And more households joined the bottom three income levels than had joined the top three, according to the Census data.

The interactive graphic below shows that, between the two three-year periods, a shrinking middle class in many states was offset by growth but only in the upper and lower income extremes.

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Niraj Chokshi reports for GovBeat, The Post's state and local policy blog.
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Niraj Chokshi | November 17, 2013