Gap Widens Between Rich, Poor

Dayton Daily News - April 28, 2002
   

Investment income, manufacturing decline cause divide among Ohioans
by Christopher Montgomery

Dayton Daily News

DAYTON | The growth rate of Ohio’s income gap — the difference between the income earned by the state’s wealthiest and poorest families — was among the most pronounced in the country during the past 20 years, according to a report released this week by two Washington D.C.-based research firms.

The report, based on U.S. Census Bureau data and compiled by the Center on Budget and Policy Priorities and the Economic Policy Institute, examined income gaps at the state level.

Ohio’s income gap, the report found, grew at the fifth-fastest rate in the United States, surpassed only by New York, Oregon, Massachusetts and California. Ohio was also only one of five states where the average income of the poorest families declined between the late 1970s and 2000.

Adjusted for inflation, the average income earned by the bottom fifth of Ohio families decreased $831, or 5.4 percent, to $14,680 during the past two decades. At the same time, the average income earned by the top fifth of Ohio families increased $43,024, or 43 percent, to $142,810.

Ohio’s income gap now stands at a ratio of 9.7, meaning the wealthiest fifth earns almost 10 times more than the poorest fifth. The gap in the late 1970s was a ratio of 6.4.

The report, titled “Pulling Apart: A State-by-State Analysis of Income Trends,” cited the decline in manufacturing jobs, expansion of low-wage service jobs and lower real value of the minimum wage as some of the causes behind lagging incomes at the bottom of the pay scale. But the report said that the primary catalyst behind the growth of the income gap was the dramatic increase in investment income, such as dividends and capital gains, earned by the state’s wealthiest families.

The economic boom of the late 1990s, with its persistently low unemployment rates, brought real wage gains at the bottom of the pay scale, the report found. Between 1998 and 2000, the average income of the poorest 20 percent of Ohio families increased $910, or 6.6 percent, to $14,680.

But the report said that “recent wage gains had only begun to offset two decades of eroding real wages and are now placed in great jeopardy by the current recession with the accompanying rise in unemployment.”

The loss of manufacturing jobs has put the most pressure on Ohio’s poorest families, said Amy Hanauer, executive director of Policy Matters Ohio, a liberal, nonprofit policy research organization based in Cleveland.

Hanauer said the growing income gap is affecting the state’s public dialogue.

“It’s a real problem, for our state and for our commonness of experience, when you see the poor getting poorer and the rich getting richer,” she said. “It’s harder to understand what lower-income families are facing when you get further away from their reality.”

The report also looked at the income of the middle 20 percent of Ohio families. During the past two decades, the average income of the middle class increased $6,900, or 15 percent, to $52,740. Ohio’s middle fifth makes roughly 3 times less than the top fifth.

As for policies that could help reduce income inequality, the report mentions an increase in the minimum wage, expansion of unemployment insurance and the provision of more social services for families struggling under the current welfare system.

The report also urges states to establish state-earned income tax credits. The federal-earned income tax credit is a tax credit for low- and moderate-income workers that is designed to offset the burden of the Social Security payroll tax. Fifteen states, but not Ohio, have earned income tax credits.

Lucia Dunn, a professor of economics at The Ohio State University, agreed that the state could do more to assist low-income families. But she said the debate about income inequality focuses too intensely on the wealthy.

“We like the notion of equality in America. There’s something about wide disparities in income that bothers us,” Dunn said. “But while we should be constantly vigilant that not too many people get below a livable level of income, we shouldn’t be too bothered by the people at the top.”

Dunn said that the states with the smallest income gaps — such as Alaska, Iowa and South Dakota — provide fewer opportunities for wealth, which tends to level out income differences between families.

“In Ohio, where you have a large population and a lot of industry, there are plenty of ways to generate a lot of income,” Dunn said. “There’s opportunity here. We should want more people to succeed and make money. It’s not necessarily a bad thing.”

• Contact Christopher Montgomery at 225-2348 or e-mail him at cmontgomery@coxohio.com

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