January, 2000

 

Pulling Apart:
A State-by-State Analysis of Income Trends

 

Despite the strong economic growth and tight labor markets of recent years, family income disparities in Ohio are significantly greater in the late 1990s than they were during the 1980s. Income gaps between the richest fifth of families and the poorest fifth of families increased substantially in Ohio, as did gaps between the richest fifth and the middle fifth of families.

 

This report uses the latest Census Bureau data to measure pre-tax changes in real incomes among families in Ohio and the rest of the states. The data compares families at three similar points in the business cycle – the late 1970s, the late 1980s and the late 1990s.

Key findings related to Ohio include the following:

• The richest 20 percent of Ohio families had incomes 9.7 times as large as the poorest 20 percent and 2.8 times as large as the middle 20 percent. Nationally, the richest 20 percent of families had incomes that were more than 10 times as large as the poorest 20 percent.

• The richest 5 percent of families had incomes that were more than 16 times as large as the poorest 20 percent.

• Income inequality has increased in Ohio both since the late 1970s and since the late 1980s.

• The increase in inequality between the richest and poorest Ohio families was greater than in all but ten states.

• Between the late 1970s and the late 1990s in Ohio:

• The average income of the poorest fifth of families decreased by 11 percent, or $1790, from $15,780 to $13,990.

  • The average income of the middle fifth of families increased by 5 percent, or $2510, from $46,630 to $49,130.

  • The average income of the richest fifth of families increased by 34 percent, or $34,740, from $101,520 to $136,260.

  • The average income of the richest 5 percent of families increased by 57 percent, or $84,420, from $147,650 to $232,070.

• The richest 20 percent of Ohio families now earn 43 percent of income in the state, while the share earned by the middle fifth has fallen to 17 percent.

The report demonstrates that economic growth in Ohio has not been broadly shared.

 

Causes of Rising Inequality

Several factors have contributed to the large and growing income gaps in Ohio and other states. The growth of income inequality is primarily due to a growth in wage inequality. Wages at the bottom and middle of the wage scale have only recently grown after having declined in Ohio for nearly two decades. This is consistent with findings from The State of Working Ohio, 1999, which showed that between 1979 and 1997, real wages in Ohio dropped sharply for both those in the middle and those toward the bottom of the earnings spectrum. Factors generally identified as contributing to increasing wage inequality include globalization, the decline of manufacturing jobs and the expansion of low-wage service jobs, the lower real value of the minimum wage, and fewer and weaker unions.

In the last few years, persistent low unemployment and increases in the minimum wage have fueled wage gains at the bottom. As a result, there has been a lessening of wage inequality between the bottom and the top, although the gap between middle- and high-wage workers continues to grow. The recent wage growth for low-wage workers has, however, been far from sufficient to counteract the two-decade long pattern of stagnant or declining incomes.

 

Ohio Can Choose a Different Course

Government at all levels has an important role to play in pushing back against the growth of income inequality. The role of state governments, in particular, has been increasing. Administration and financing of governmental programs has been shifted to the state level. At the same time, the current economic expansion and the new approach to delivering state welfare funds have given Ohio ample resources to address growing income inequality.

 

Through policies such as raising the minimum wage, strengthening unemployment insurance, implementing a wide range of supports for low-income working families, and reforming Ohio’s regressive state tax system, Ohio lawmakers can help moderate the growing income divide.

 

About the Data in the Report

The report is based on an original analysis of before-tax income for families recorded by the Census Bureau’s March Current Population Survey. The analysis compares “pooled” data from the three most recent years available – 1996, 1997 and 1998 – to similarly pooled data from the late 1970s and 1980s. Using pooled data enlarges the sample size, thus increasing precision. The three periods compared reflect similar stages in the economic cycle. All figures in this report are adjusted for inflation and are expressed in 1997 dollars.  An analysis of the average income of the top five percent of families was also conducted for eleven large states, including Ohio.