Increasing State Inequality

At long last, politicians in the United States are paying attention (or at least lip service) to growing economic inequality in America.  A recent report by the Economic Policy Institute entitled "The Increasingly Unequal States of America" examines long-term state level data to see how the top one percent in each state have fared over the period from 1917 to 2012, emphasizing the period from just before the Great Depression to 2012, showing us just how lopsided income growth and economic inequality have become.  Here are their findings.

The analysis begins by looking at the trends in income growth since the Great Recession.  The authors of the report found that during the first three years of the recovery (2009 to 2012), the top one percent saw their average income grow by 36.8 percent while the average income of the bottom 99 percent actually declined by 0.4 percent.  On a state-by-state level, 39 states saw the top one percent capture between half and all income growth and in 16 states, the incomes of the top one percent grew while the incomes of the bottom 99 percent dropped by as much as 16 percent (Nevada).  This means that in these 16 states, the top one percent captured more than 100 percent of the overall increase in income.  In only one state, West Virginia, did the incomes of the top 1 percent shrink by a rather small 2.5 percent.

Here is a table which shows the states in order of total average real income growth captured by the top one percent between 2009 and 2012 from largest to smallest:

On a nationwide basis, average real income growth for all Americans between 2009 and 2012 was 6.3 percent.  The West saw the greatest real income growth for the top one percent who saw their real incomes grow by 42.8 percent and shrink by 1.4 percent for the bottom 99 percent.

Now that we have seen how incomes have changed over the period from 2009 to 2012, let's look at how income inequality varies from state-to-state.  The following table shows us the average incomes for the top one percent of taxpayers and the average incomes of the remaining 99 percent in order of the top income-to-bottom income ratio:

On average across the United States, the top one percent of income earners earned $1,303,198 compared to an average of $43,713 for the remaining 99 percent.  The ratio between top earners and the remaining 99 percent averaged 29.8 for the entire country meaning that, on average, the one percent earns 29.8 times the average earned by the remaining 99 percent.  As further evidence of how lopsided incomes have become, the top 0.01 percent in Wyoming earned $368.8 million, $83.9 million in Connecticut and $69.6 million in New York.

History shows us that lopsided incomes and income growth are not a brand new phenomenon.  Over the years between 1979 and 2007, the average incomes of the top one percent grew by 200.5 percent compared to 18.9 percent for the bottom 99 percent of taxpayers.  Over the two and a half decades before 2007, the top one percent captured 53.9 percent of all income growth.  Going back even further, we find that income inequality reached a peak in 1928 before declining rapidly in the 1930s and 1940s where it remained relatively stable until the mid-1980s as shown on this graphic:

On a nationwide basis, in 1928, the top one percent had 23.4 percent of all income.  This fell gradually and by 1979, the top one percent controlled only 9.9 percent of all income.  This rose rather rapidly during the mid-1980s, 1990s and 2000s, hitting 23.1 percent in 2007, just prior to the Great Recession, nearly retracing all of the losses incurred since the Great Depression.

It is apparent that income inequality is affecting all fifty states.  After the the Great Recession, the top one percent saw their incomes rise at a far faster rate than the bottom 99 percent.  As well, declining inequality during the period from the 1930s to 1970s was, in large part, due to unionization and collective bargaining which brought about rising real wages for most American workers, low levels of unemployment and a corporate environment where executive compensation was based on the performance of the company rather than the performance of the stock market.  In today's executive world, compensation is based on the recommendations of a "compensation committee" which bases its decisions on the inflated compensation packages of its corporate peers, making it look increasingly unlikely that income inequality will decline any time soon.