For further information: Frank Tortorici
The Conference Board
(212) 339-0231
For Immediate Release, Thursday, April 23, 1998 at 6:30 PM ET Release #4413
INCOME INEQUALITY GROWS ACROSS AMERICA, WITH EARNINGS GAP HIGHEST IN NEW YORK Shift In Labor Demand Toward Skilled Workers Is Main Cause
Despite strong economic growth and record low unemployment, the gap between America's richest and poorest families has sharply increased over the last 20 years, according to a Conference Board report.
Income inequality is high in every state in the country, with average household income growing faster for the richest 20% of U.S. families than the poorest 20% from the late 1970's through the mid-1990's, according to The Center for Budget and Policy Priorities.
The household income gap is greatest in the Middle Atlantic states, which covers New York, New Jersey and Pennsylvania. The upper 20% of all families in this region is more than five times higher than the lowest 20%. New York is the most unequal state in the country in terms of household income.
The South also has high income inequality, with income gaps in Florida and Louisiana among the highest in the nation. ( m o r e )
-2-
"Widening inequality has largely resulted from a pronounced shift in labor demand toward skilled workers," says The Conference Board report. "The long-term decline in the real minimum wage and the steady decrease in unionization have also been partially responsible for the growth in inequality. The decline in unionization, according to some studies, may account for as much as 20% of the increase in income inequality."
Income gaps are smallest in the West North Central region-Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota-and Mountain states-Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming.
Although weakening, the link between economic growth and income gains still exists. The bottom fifth of all U.S. households have experienced higher income gains in the regions with the fastest growing economies. But inequality persists as a result of the still more rapid gains enjoyed by the top fifth of households in nearly every region.
THE PRICE OF ONE YEAR'S EDUCATION
The movement toward greater use of computers and other productivity-enhancing equipment has required advanced skills, so the premium for education has risen. The future gain in wages from an extra year of schooling has been on a long-term upward trend and is now more than 10%. Twenty years ago, an extra year of school for an average worker led to a more modest 6% gain in wages. The link between schooling and future income is very strong and is clearly evident when comparing states by average years of schooling and median personal income.
There is growing evidence that the quality of schooling, particularly class size, has an effect on educational achievements and earnings. The Northeast and West Central regions led the nation with fewer than 16 pupils per teacher in 1995, compared with the national average of more than 17. The Pacific was the worst region, largely reflecting California's ratio of 24 pupils per teacher.
OTHER FACTORS IN INEQUALITY
Although there is some evidence that immigration of unskilled workers may affect the low end of the income distribution in some cities, the overall effect has not been large. Trade, as well, has played a ( m o r e )
- 3 -
small role in the increase in inequality.
"The contribution of institutional and globalization issues to widening inequality should not be seen in isolation but rather in conjunction with a labor market where skills and educational background are increasingly valued," says Bhashkar Mazumder, author of the report. "Global integration may simply reinforce the existing need of rising inequality without being the primary cause."
Other highlights of the study:
-- Growth in New England was 2.6%, the best performance in the region since 1994.
-- The East North Central region (Illinois, Indiana, Michigan, Ohio and Wisconsin) experienced a burst of economic activity during the fourth quarter of 1997 - the best quarter since early 1995. This momentum will help offset the slowdown induced in the region by the effects of the Asian crisis.
-- The East South Central region (Alabama, Kentucky, Mississippi, Tennessee) remains the weakest in the country. The long-term decline in textiles and apparel and the effects of the Asian crisis on some of the region's less expensive manufactured goods are the main positive factors. Hope for 1998 is in the form of high consumer confidence and employment growth.
-- Shortages of skilled workers in the energy sector threaten to slow further expansion in the West South Central (Arkansas, Louisiana, Oklahoma, Texas).
-- The Pacific region was the top performer in 1997. The problems in Asia will lead to weaker tourism in Hawaii, but the region will remain the growth leader because of solid consumer fundamentals and the prospect of a long-term construction boom in California.
-30- Source: Regional Economies and Markets, First Quarter 1998, The Conference Board
RSS