Income Inequality 2008- No. 523.

INCOME INEQUALITY GREW IN MOST STATES OVER PAST TWO DECADES
Low-Income Families Lost Ground Since Late 1990s
The gap between the richest and poorest families, and between the richest and middle-income families,grew significantly in most states over the past two decades, according to a new study by the Center on Budget and Policy Priorities and the Economic Policy Institute.
In fact, the nation’s longstanding trend of growing inequality accelerated since the late 1990s as incomes fell for poor families and stagnated for middle-income families in a number of states.
The study, based on inflation-adjusted Census data, is one of the few to examine income inequality at the state level. It measured and compared income trends among the highest-, middle-, and lowest-income families in three periods – the late 1980s, the late 1990s, and the mid-2000s. (If anything, the study understates inequality because it does not include income from capital gains, which goes overwhelmingly to
those at the top.)
Low- and middle-income families have reaped few gains since the late 1990s, despite the recent years of economic prosperity. Average incomes actually fell by 2.5% for those in the bottom fifth of the income scale and rose by just 1.3% for those in the middle fifth. Meanwhile, incomes climbed 9% for those in the top fifth.
“Before the recent downturn hit, our economy was generating solid income gains. The problem was that high levels of inequality meant these gains failed to reach middle- and low-income families, whose living standards stagnated or even declined,” said Jared Bernstein, senior economist at the Economic Policy Institute and co-author of the report. “As we head into an economic downturn, these families are illprepared to weather the storm.”
Elizabeth McNichol, senior fellow at the Center and the other co-author, added, “Rising inequality raises basic issues of fairness, and harms the nation’s economy and political system. It dampens economic prosperity as incomes stagnate for tens of millions of average Americans and it threatens to widen the nation’s political cleavages, generating more cynicism about political institutions.”
During the longer time period – from the late 1980s to the mid-2000s – in 37 states, incomes grew much more slowly for the bottom fifth of families than for the top fifth. In these states, the incomes of the richest fifth grew by an average of $36,300 (39 percent), while the incomes of the poorest grew by only $1,600 (9 percent). The purchasing power of the poorest families increased by just $93 per year.
The states facing the largest income gaps between the top and bottom fifths of families are New York, Alabama, Mississippi, Massachusetts, Tennessee, New Mexico, Connecticut, California, Texas and Kentucky.