Since the late 1970s, income inequality in the U.S. has grown by nearly 20%. The Great Recession has brought the disparity between the rich and the poor to the forefront of the news. The Occupy Wall Street movement and terms such as the 99% and 1% further highlight the attention about the subject. Instead of improving after the recession, income inequality rose 1.6% between 2010 and 2011.
In some states, the Gini coefficient - a ratio between zero and one that reflects perfect equality at zero and significant concentrations of wealth, extreme poverty and a limited middle class as the ratio increases - is well below 0.0476 national average. In Wyoming, the coefficient is just 0.408. In New York state, income inequality is now at 0.503. Based on 2011 figures from the U.S. Census Bureau's American Community Survey, 24/7 Wall St. identified the states with the widest gap between rich and poor.
In an interview with 24/7 Wall St., Director of Research and Policy at the Economic Policy Institute Josh Bivens explained that the recession, despite its disastrous effects on employment, actually has temporarily caused growth in inequality to slow, as extremely high-income individuals in finance were hit particularly hard. Still, Bivens believes that income will again begin rising much faster among the top 1% than the rest of the population in the next several years.
The reasons some states have more income inequality than others are varied, but the industrial makeup of these states is perhaps chief among them. States with a disproportionate representation of industries with the potential for extremely high-income positions are more likely to have higher income inequality than those with more diverse industries.
Connecticut and New York, for example, are home to largest finance centers in the country. Investment bankers and hedge fund managers in the state can earn many times the average middle-class worker. In New York, 8% of households earned $200,000 or more in 2011, much higher than the national average of 5.6%. In Connecticut, 11.2% earned more than $200,000.
In other states, such as Texas and Louisiana, the oil extraction industry has created a small group of billionaires. These states also have some of the largest impoverished populations in the country. In Louisiana, more than one in five residents live below the poverty line, significantly higher than the national rate of just 15.9%.
Unemployment hit 7.8% in September, the lowest it has been since January 2009. However, while more and more people return to work this is not necessarily positive news for the long-term health of the American middle-class. The U.S. is not projected to return to pre-recession employment levels until 2017, Bivens explained, and as Americans return to work, they will be more willing to work for lower wages.
In this environment, "it's really tough for workers to get good wage increases at the middle when there are unemployed workers who could replace you if you start making big wage demands," Bivens said.
Based on data from the U.S. Census Bureau, 24/7 Wall St. identified the 10 states with the widest gap between rich and poor, as measured by states' Gini coefficient scores. In addition to these scores, 24/7 Wall St. reviewed median income and the distribution of household income provided by the Census Bureau for these states. We also reviewed the percentage of households living below the poverty line and the percentage of households receiving food stamps. Additionally, we looked at the Institute for Policy Studies' Inequality Report Card, which provided grades to senators and congressmen based on their voting record related to income inequality.
These are the states with the widest gap between rich and poor.
Filed under: 24/7 Wall St. Wire, Economy Tagged: featured