Income inequality.

• Author: Thompson, Michael F.

Income inequality is a growing problem across the United States, and this article considers differences among states between 2002 and 2007--the last period of economic expansion. Specifically, this research focuses on the 90/10 income inequality ratio--the wage or salary income earned by individuals at the 90th percentile (those earning more than 90 percent of other workers) compared to the earnings of workers at the 10th percentile (those earning higher than the bottom 10 percent).

Morris and Western document that U.S. income inequality rose tremendously between the early 1970s and the close of the 20th century as income for people earning at the 70th percentile or lower declined while earnings near the top of the income distribution grew substantially in real value. (1) This trend is problematic since researchers find that increasing levels of inequality can reduce economic mobility as well as civic engagement and life satisfaction. (2)

As the United States currently regains economic strength after the 2008 recession, it is useful to look back to the last growth period to see which states had worsening income inequality and which were able to reduce this problem. This article measures disparities in income from the 2001 recession through 2007 using wage data from the Current Population Survey. (3) It considers differences between women and men across the U.S. who were employed full-time. While income inequality ratios fluctuate widely from year to year, these analyses depend on regression-based coefficients that estimate whether there is a statistically significant trend over the complete six-year period.

Overall Income Inequality Trends

The first step in understanding inequality trends is to consider changes at the bottom and top of the income distribution. Figure 1 demonstrates that, across the United States, workers at the 10th percentile saw their incomes largely stagnate at roughly $16,500 per year between 2001 and 2007. This nearly flat income level is observed despite a noticeable bump in 2007 that may be due to the first stage of the three-part federal increase in the minimum wage. However, on average, states saw a significant decrease in their 10th percentile income levels--a drop from $17,100 in real value in 2005 to $16,750 by 2007. This strongly suggests that while most states had constant wages for this low-wage bracket, some experienced sharp decreases.

[FIGURE 1 OMITTED]

Meanwhile, near the top of the income distribution...