NCPA - National Center for Policy Analysis

Gap Between Rich and Poor Narrowed

April 24, 2002

Advocates for higher minimum wages and higher taxes on the wealthy often point to growth in income inequality between the highest and lowest income groups to support their argument. But critics of these policies argue America's flexible economy allows lower-earning families to jump to higher levels of income over time.

A new report suggests that after widening since the 1970s, the income gap between the rich and poor narrowed at the end of the 1990s. Based on Census Bureau income data, researchers found:

  • The top 20 percent of American families on average earned $9.99 for every dollar earned by the bottom 20 percent during 1998 through 2000.
  • When the groups conducted a similar study two years ago, the ratio was $10.58 for every dollar.
  • During the late 1990s, household income among the poorest families rose 10.3 percent, to an average of $14,232 -- while incomes among top earners rose 8.2 percent, to an average of $155,527.

New York, Louisiana and Texas had the widest gaps in average income; Indiana, Utah and South Dakota the narrowest.

Exceptionally low rates of unemployment boosted the wages of poorer households in the late 1990s, which the report's authors credit with narrowing the gap.

For example, from 1997 to 2000, the unemployment rate for high-school dropouts fell to 6.2 percent from 7.5 percent. For individuals with no more than a high school degree, it fell below 4 percent. So the scarcity of workers drove up wages for the least skilled.

Source: Jon E. Hilsenrath, "Income Gap Narrowed at End of '90s," Wall Street Journal, April 24, 2002; based on Jared Bernstein, et al., "Pulling Apart: A State-by State Analysis of Income Trends, April 2002, Center of Budget and Policy Priorities and Economic Policy Institute.

For report (requires Acrobat reader)

http://www.cbpp.org/4-23-02sfp.pdf

 

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