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Rich poor income gap widens { January 27 2006 } Original Source Link: (May no longer be active)
http://www.chicagotribune.com/business/chi-0601270145jan27,1,1050558.story?coll=chi-business-hedhttp://www.chicagotribune.com/business/chi-0601270145jan27,1,1050558.story?coll=chi-business-hed
Rich, poor income gap widens
Illinois' wealthiest families enjoy 50% jump; for others, 20%
By Barbara Rose
Tribune staff reporter
Published January 27, 2006
Illinois' richest families saw their incomes grow more than twice as fast as families at the bottom and middle of the economic ladder during the last two decades, according to a national study released Thursday.
The report, which offers a state-by-state analysis, suggests the gap between the nation's top earners and lower- and middle-income families is widening because of powerful economic forces, such as global competition, combined with government policies.
"The wealth and income is once again accruing to families at the very top," said Jared Bernstein, senior economist at the Washington, D.C.-based Economic Policy Institute, a liberal think tank.
The study was conducted by the institute and the Center on Budget and Policy Priorities. Economists at conservative institutions don't dispute that inequality is growing, but they disagree about the causes and solutions.
"The important thing is, everybody is doing better," said Rea Hederman Jr., senior policy analyst at the conservative Heritage Foundation. "Even people at the bottom quintile are better off than they were at the start of the period."
Compared with other states, Illinois ranked squarely in the middle--No. 25--in the disparity between its richest and poorest families. New York had the greatest inequality between rich and poor; Texas had the greatest gap between rich and middle-income, the study said.
In Illinois:
- The richest 20 percent of families had average incomes 6.8 times as large as the poorest 20 percent in the early 2000s, up from 5.4 times in the early '80s.
-The highest incomes in the early 2000s were 2.5 times as large as the middle 20 percent, up from 2 times 20 years earlier.
- Average incomes for the richest 20 percent, adjusted for inflation, increased by 51 percent, to $123,231, or about $1,990 per year, during the period.
- Average incomes for the middle increased 21.5 percent, to $50,032, or about $420 per year.
- Average incomes for the poorest rose by 20.5 percent, to $18,032, or about $145 per year.
The study is based on U.S. Census data, adjusted for inflation, federal taxes and the cash value of food stamps, subsidized school lunches and housing vouchers. It includes income from capital gains.
Inequality wasn't always a hallmark of the U.S. economy, economists agree.
From the post-World War II period into the 1970s, average wages moved in lockstep with the country's economic growth, benefiting workers at all income levels equally, Bernstein said. But that changed starting in the 1980s, when the gap between rich and poor began to widen.
"The 1996-to-2002 period was the only time during the last two decades that real wages grew significantly for workers at all levels, including those at the lower end of the income distribution," the report states.
A tight labor market during the high-tech stock boom pushed wages up even for the lowest-paid worker, and the bursting of the high-tech stock bubble hit the richest families harder, the study suggests. But incomes at the top have rebounded since the 2001 slump, while the recession's impact on low- and middle-income families persists, the report said.
A recent study by the Congressional Budget Office reported that real income fell by more than 1 percent between 2002 and 2003 for the bottom 20 percent of workers, remained virtually flat for workers in the middle and rose 3.9 percent for the top quintile. It jumped 8 percent for the top 5 percent of families.
"All indications are we're back to a situation that's more like the 1980s, and income inequality is growing again," said Elizabeth McNichol, senior fellow at the Center on Budget and Policy Priorities.
The biggest contributor to rising inequality is the erosion of wages for workers without college degrees, the report states. But it notes that even college-educated workers recently have lost ground, partly because of offshore competition.
Some of the forces driving inequality are periods of relatively high unemployment, the shift to service from manufacturing jobs, the decline of unions and the decline in the value of the minimum wage, the report said. Among the remedies it suggests for state governments are increasing their minimum wage, strengthening supports for working families and making unemployment insurance more widely available.
The Heritage Foundation's Hederman said investments in education are a better solution.
"The world places a higher premium on skills and education," he said.
He said the report discounts the impact of demographic trends, such as the rise in single-parent families that comprise a growing number of the poorest households.
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berose@tribune.com
Copyright © 2006, Chicago Tribune
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