It Pays to be Rich

It Pays to be Rich

Images Courtesy of Flickr. Creative Commons

Discussion Divas

April 14, 2008

You’ve heard of the income gap. It’s growing wider in most states, at a faster clip.

Take for instance Massachusetts, where the bottom fifth of earners saw incomes grow 1.6% on average since the late 1980s. On income of $20,000, that’s $320. Juxtapose that with the top 5% of earners there, whose incomes on average almost doubled to $310,000.

It’s a scenario happening all over the country, where the rich are getting richer and the poor are getting poorer. Nationally, the top fifth of earners make over seven times that of earners in the bottom fifth, whose incomes fell 2.5% on average since the late 1990s.

The report used Census data that was adjusted for inflation and other government benefits like food stamps and welfare and social security. It did not account for capital gains (income or losses from investments), making their results “show somewhat less inequality than would be the case.”
See the full report.

All states are not equal

In some states the gap is more pronounced, like in California, Texas and New York. Illinois also saw a major rift between top and bottom earners, where average income of bottom fifth earners decreased by $1,600 (- 8%) while the income of the top 5% of earners grew $37,000 (+19%).

Stuck in the middle?

Perhaps most troubling, it seems not much has changed for people in the middle. Incomes on average nationwide barely budged, increasing just 1.3%, according to the report. Another report by Pew Research found the economic situation of middle-class Americans at its worst since 1964, with over 30% claiming their situation had deteriorated over the last five years.
See the Pew report.

The big picture

According to the Census Bureau, the median household income, adjusted for inflation, actually fell by $500 between 2000 and 2007. That means that even as the economy was growing, paychecks were shriveling. Now that the economy is teetering on recession, it’s likely more will struggle to make ends meet. The Pew survey found that 50% of middle class earners felt they would have to cut back on spending over the next year, and record-high gas prices and rising costs for basic grocery store items will contribute to growing living expenses. Even with the volatile stock market, the power to invest will only add to the growing income gap between those who have money to invest with, and those who live hand to mouth.

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