Pennsylvania Among States with Fast-Growing Income Inequality

Posted by on November 26, 2012

Pennsylvania Among States with Fast-Growing Income Inequality
Middle- and low-income Pennsylvanians have fallen further behind top earners over past 30 years

Income gaps widened in Pennsylvania between the late 1990s and the mid-2000s with earnings for low-income families dropping as the income of the wealthiest continued to increase, according to a new study by the Center on Budget and Policy Priorities and the Economic Policy Institute.

This “lost decade” is part of a longer-term movement toward greater income inequality in the commonwealth. Since the late 1970s, income gaps have grown not only between low- and high-income households but also between middle- and high-income households.

“Whether you’re a corporate executive or a laborer, hard work should pay off,” said Stephen Herzenberg, economist and executive director of the Keystone Research Center. “Instead, what we’re seeing in Pennsylvania is that when the economy grows, most of the benefits go to the richest households. This deepening economic divide is bad for all Pennsylvanians.”

The report, Pulling Apart: A State-by-State Analysis of Income Trends, released in Pennsylvania in coordination with the Keystone Research Center and Pennsylvania Budget and Policy Center, finds that moderate- and low-income Pennsylvania families did not share in the most recent economic expansion:

Between the late 1990s and mid-2000s, the annual incomes of the richest fifth of Pennsylvania households grew by 7.2 percent ($11,190), while those of the poorest fifth fell by 7.9 percent ($1,907).
The income gap between the very richest households and low-income households increased even more dramatically. The incomes of the richest 5 percent of Pennsylvanians grew by 11.2 percent ($27,387) from the late 1990s to the mid-2000s.
Income inequality also grew between middle- and high-income households in Pennsylvania from the late 1990s to the mid-2000s. Middle-income Pennsylvania households saw their incomes rise by only 1.9 percent ($1,169) — compared to 7.2 percent for the richest fifth and 11.2 percent for the richest 5 percent of households.
Incomes grew much faster among the wealthy than low-income households. In the late 1990s, the income of the richest fifth of Pennsylvania households was 6.4 times that of the lowest-income fifth, and by the mid-2000s it was 7.4 times larger. The top 5 percent of households had 10.1 times the income of the bottom fifth in the late 1990s, and by the mid-2000s it was 12.2 times larger.

“The drop in incomes among Pennsylvania’s poorest households is particularly troubling,” said Sharon Ward, Director of the Pennsylvania Budget and Policy Center. “Growing up in poverty reduces a child’s chances to excel in life. Policymakers should be working to ensure all kids can reach their full potential.”

Nationwide, incomes fell by close to 6 percent among the bottom fifth of households, on average, while rising by 8.6 percent among the top fifth between the late 1990s and mid-2000s. Incomes grew even faster — 14 percent — among the top 5 percent of households.

The findings of the report echo those of the Keystone Research Center’s State of Working Pennsylvania released shortly before Labor Day. That report found most middle-class Pennsylvania families had seen their wages and income stagnate since 2000 even though productivity in the economy had grown.

Growth in the size of the overall economic pie could have supported rising living standards for all Pennsylvania workers, Keystone’s researchers wrote, but an outsized share of the benefits went to the wealthiest households, preventing board-based prosperity and slowing down the economic recovery.

Researchers with the Center on Budget and Policy Priorities and the Economic Policy Institute reported that income inequality is rising across the nation for a range of reasons, including long periods of high unemployment, more intense competition from foreign firms, a shift from manufacturing to service jobs, and a minimum wage that has not kept up with price increases.

Pennsylvania state policymakers can take a number of steps to help address the disparity between the rich and the broad middle class. They include:

Raising the minimum wage and indexing it to keep pace with rising costs.
Reforming the state’s tax system so that everyone is paying their fair share, and low-income people aren’t paying a higher portion of their incomes in taxes than the wealthy.
Making education and work training more accessible by restoring cuts to public schools and universities and investing adequately in workforce training.
Protecting supports for low-income workers, such as nutrition assistance, help with housing and skills training. Pennsylvania should also expand Medicaid under the Affordable Care Act to insure more low-income working adults.
Enacting an “Investment in the Future” plan that bolsters our infrastructure, manufacturing sector, skills, and scientific research in a way that lays the foundation for long-term growth.

“Pennsylvania needs a new direction led by policymakers who will commit themselves to broadly shared prosperity,” Herzenberg said. “People who work hard and play by the rules should be able to share in our nation’s expanding economic pie.”

The joint CBPP/EPI report, as well as a press release and state fact sheets, are available at http://www.cbpp.org/cms/index.cfm?fa=view&id=3860.