Ask experts to identify broad, defining economic trends of the past few decades, and you’re likely to hear one come up often: widening inequality.
Just this week, we wrote about how income inequality continues to grow through the modest recovery, extending a decades-long trend. And one consequence of that widening inequality is growing economic insecurity. The chart above shows in stark detail how economic security has worsened in each state since 1986, peaking during the Great Recession before reversing course slightly.
“To me the two great transformations of the economy over the late 20th century have been the rise in inequality and the increasing risk that households and workers bear,” says Yale University Professor Jacob Hacker, who in 2010 introduced the Economic Security Index. This week, he and his fellow researchers released an updated state-by-state version of that index, based on historical Census data, along with maps such as the ones above.
The ESI measures security based on income. At base, the ESI is a measure of the share of people who lose at least a fourth of their available household income in a given time period. (See a more detailed definition.) As such, insecurity has a tendency to worsen during recessions, when incomes take a hit.
The recent Great Recession was particularly bad. Every state saw a “substantial rise” in insecurity from 1986 through 2010, according to the report. Since the downturn began, more than one in five Americans have experienced losses of 25 percent or more of available income, compared to about one in seven in the mid-1980s.
There is, of course, great variability among the states. Economic insecurity in New Hampshire peaked in 2007 when 17.6 percent of people lost a fourth or more of their available household income. In Mississippi, on the other hand, economic security was at its lowest exactly 20 years earlier when only 17.7 percent of the population was economically insecure. Put another way, Mississippi is virtually a generation behind New Hampshire on economic security.
The disparity between those two states was sustained during the Great Recession. New Hampshire had the lowest level of income losses at approximately 17 percent. Mississippi had the highest rate of insecurity at roughly 24 percent.
Economic security also tends to be worse among the young, racial minorities and households headed by workers without a college education.
The report clearly identifies the problem, but it doesn’t answer what’s driving the rising economic insecurity.
“That’s the hardest thing to do,” says Hacker.
Is it policy? A shifting workforce? Global trends? Domestic trends? All those questions will be hard to answer, though Hacker, a longtime student of inequality has some suspicions of what may be driving the trend.
Whatever it is, he says, it likely has something to do with trends in the labor market, including so-called jobless recoveries and people dropping out of the workforce. How much blame should fall on lawmakers?
“It’s more policy nonresponses than policy responses,” Hacker says. Forms of wage insurance — protections against big income drops — have not kept up over time, he says. There’s little buffer available for individuals locked out of the labor market due to structural changes, such as outsourcing or technological changes that eliminate jobs.
Compare states or read state reports over at the index’s Web site. Data for Alaska and Hawaii were unavailable.
* A more detailed definition, from the report: “The ESI captures three major risks to economic well-being that Americans believe are difficult to anticipate and about which they express deep concern: (1) major income loss, (2) large out-of-pocket medical spending, and (3) insufficiency of liquid financial wealth to deal with the first two risks. Specifically, the ESI represents the share of Americans who experience at least a 25 percent decline in their inflation-adjusted ‘available household income’ from one year to the next and who lack an adequate financial safety net to replace this lost income until it returns to its original level. ‘Available household income’ is income that is reduced by the amount of a household’s out-of-pocket medical spending, as well as adjusted to reflect household size and household debt burdens. Thus Americans may experience income losses of 25 percent or greater due to a decline in income or an increase in medical spending or a combination of the two.”