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The growing income gap

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Senator Bernie Sanders has been campaigning that he wants to close the income gap in America. Is there an income gap? Why should we care?

Last October, financial news and opinion company, 24/7 Wall St., reported that the gap between rich and poor “jumped dramatically” in the 1980s and has continued to grow. Between 1979 and 2011, wages for the wealthiest one percent of Americans more than doubled, while wages for the median U.S. worker increased just six percent. Nationwide, three percent of earned income goes to the poorest 20% of people, while 51 percent goes to the richest 20 percent.

The problem has worsened. Incomes among the richest 20% of households grew faster from 2006 through 2014 than they did among the poorest 20% of households in all 50 states without exception.

24/7 Wall St. reviewed the states with the widest gaps between the rich and poor. These states also tended to have relatively low educational attainment rates and poor job markets. Unemployment rates in those states was higher than the national rate. To identify these states, 24/7 Wall St. used information from the 2014 U.S. Census Bureau’s American Community Survey and information from the Bureau of Labor Statistics.

The five states with the widest gaps between the rich and poor are:

  1. New York

> Median household income: $58,878 (16th highest)
> Households earning $200,000 or more: 7.6% (7th highest)
> Poverty rate: 15.9% (19th highest) 

  1. Connecticut

> Median household income: $70,048 (4th highest)
> Households earning $200,000 or more: 10.0% (2nd highest)
> Poverty rate: 10.8% (3rd lowest) 

  1. Louisiana

> Median household income: $44,555 (7th lowest)
> Households earning $200,000 or more: 3.6% (25th lowest)
> Poverty rate: 19.8% (3rd highest) 

  1. California

> Median household income: $61,933 (9th highest)
> Households earning $200,000 or more: 8.1% (5th highest)
> Poverty rate: 16.4% (17th highest) 

  1. Massachusetts

> Median household income: $69,160 (6th highest)
> Households earning $200,000 or more: 9.3% (3rd highest)
> Poverty rate: 11.6% (10th lowest)

The Brookings Institution  reported last October that the child poverty rate climbed from 14 percent in the 1960s to 21 percent by 1980 and remains over 20 percent. Where children end up economically can be forecast by their parents’ income, as illustrated in the chart below.

Income Graph

Children whose parents are at the bottom of the income ladder have a 43 percent chance of being stuck at the bottom as adults. Similarly, 40 percent of children whose parents are at the top of the income ladder will end up at the top. This pattern has changed little over generations.

Brookings cites the dissolution of the two-parent family as a significant factor in the poverty problem. An increasing number of children live in female-headed families, and these children are five times as likely to be poor than children in married-couple families. Being born outside marriage “in most cases instantly creates the family form in which children are to be poor.”

Education is another factor. The education gap between poor and rich families has increased, which makes it hard to close the income gap. Other factors are the work rate for men, which has declined over the last four decades, and that “wages for men in the lower half of wage distribution have been stagnant.”

The income gap isn’t just a fairness issue. It’s an economic issue for the rest of society.

People living in poverty require more social services. The incidence of crime related to poverty is 40 percent, and health care costs for the poor are significantly higher. These costs are absorbed by state and federal government. In a study published in 2007 by the National Poverty Center, four researchers from the University of Chicago, Georgetown University and Northwestern University concluded that poverty costs society some $500 billion per year.

It looks like Sanders is right about the gap. He just hasn’t explained why everyone should be concerned about it, and the reason is, it affects us all in some way.

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Jack D’Aurora writes for considerthisbyjd.com

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Discussion

  1. BZ  February 7, 2016

    Illuminating. Wondering about how all this is affected by America transitioning into a service economy, and what possible solutions are.

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  2. Bruce Lackey  February 8, 2016

    There is a gap and all parties need to be engaged in a solution. That includes government, wealthy, poor, healthcare, business, media, entertainment, sports and religious working together. That is a significant hurdle and I already have a full time job…

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  3. Matt Schaeffer  February 8, 2016

    Jack: Interesting stuff. Checking out the website 24/7 Wall St. website, I also saw that the poverty rate is up since 2000, and that wealth is becoming even more concentrated at the top (about 35% of the nation’s wealth is held by .5%). I don’t know how organizations come up with these statistics, or whether the statistics are accurate, but certainly both ends of the political spectrum share a sense of frustration and helplessness with the “ruling class” in both political parties. Sanders, Trump, and Cruz have all tapped into it.

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  4. Alice Foeller  February 8, 2016

    The US needs paid family leave — for the sake of its future. There is a great TED video that talks about why paid leave is NOT a women’s issue. It’s an economic issue, and not the way you think. In the absence of two-parent families where one parent can earn enough to support everyone without a professional degree (my dad could, but he wouldn’t be able to today), we need to face the reality that it takes resources to bear and raise new workers for our economy. And those resources pay dividends later. https://www.ted.com/talks/jessica_shortall_how_america_fails_new_parents_and_their_babies

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  5. jay  February 8, 2016

    Jack,
    I wouldn’t argue the point at all, but I confess I really did not understand the statistics on the top five states and how those metrics are applied. Only one southern state in the top five struck me as a bit odd (and I am from the south). But no matter, as I stated I won’t argue the point.

    There are two areas within this issue that really bother me: the issue of ‘risk versus reward’ and secondly, the issue of bona fide opportunity. When large banks (which we may actually need in order to have global financial clout) can generate significant reward (profit) which is not shared with the public, but the public bears some or all of the risk of failure, that’s a big problem. And when one’s odds of actually working one’s way out of poverty and into a better life are stagnant or diminishing, that too is a big problem. At some point the rich will care enough to generate real change that both evens the playing field of opportunity and also balances the risk/reward scale, but that point is likely to be when masses are rioting in the streets. So it seems to me to be in their selfish interest to support real change sooner rather than later.

    There are plenty of skilled and hard working folks in the Carolina’s (as an example) who in their 50’s to 70’s lost furniture and textile jobs that paid really well and enabled decent family incomes. The NAFTA came along and out they went. Sometimes that is going to happen and there are arguments that the world is better off for it, but not having an exit strategy that could lead to a decent future for those people seems criminal.

    Let’s hope we can elect politicians who are genuine in their desire to even the playing field, and not just playing up to the latest political fad. Nicely done piece.

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    • jdaurora@behallaw.com  February 8, 2016

      I’m afraid I don’t share your sense of hope, Jay. Though there are some exceptions, those at the top show little sensitivity for the risk versus reward inequity that exists. It’s interesting that you would say that it might take rioting in the streets for change to come about. I touched on that in a piece I wrote last April, “No doesn’t get us anywhere.” One of the people I mentioned in the piece was Nick Hanauer, a very wealthy man who advocates raising the minimum wage so as to preclude seeing armies of people carrying pitchforks in rebellion (a nod to the French revolution).

      Our nation is locked in by a couple paradigms that always prevail when it comes to debate about the economy. These paradigms are magic in that there is generally no need to support them with evidence. My favorites are “This will be good for small business,” and “If we cut corporate taxes, the economy will improve.” Now, what it the people who always utter these statements were to one day say, “If we raise wages, the whole economy will be get better.” As I see it, the only difference between the first two statements and the third is that the people with power make the first two, and those statements are always assumed to be correct.

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      • Dr. Pat  February 9, 2016

        Jack,
        Thank you for laying out the facts and the case for closing the widening gap in income and poverty. You see it played out at Moms2B, with real women struggling in single households. We need more subsidized, stable housing. 25% of our pregnant Moms live with the stress of poor housing.

        Can you help publicize this need? And frequent moves disrupts their children’s education. It’s one building block, good subsidized housing, that can help stabilize the downward poverty spiral.

        Our pregnant and parenting Moms need income subsidies, but they need stable housing too.
        Take care. Dr Pat

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        • jdaurora@behallaw.com  February 10, 2016

          For those of you who don’t know, Moms2Be is a program sponsored The Ohio State University that works with young, single, low-income, inner-city moms for the purpose of providing better birth outcomes. (Ohio has one of the nation’s worst infant mortality rates.) Moms2Be provides a variety of education and training for these young woman, ranging from nutrition to parenting and provides guidance on job search skills. Patricia Gabbe (Dr. Pat to all who know her) leads Moms2Be and is dynamic “army of one.”

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  6. jay  February 8, 2016

    I’m not sure if I am hopeful or not. Perhaps not. But I’ll come out and say it, I like Bernie, and I think he’s as genuine as they come. I do not consider myself a socialist and in fact, with the small exception of a local race and a minor democrat candidate who earned my vote by knocking on my front door about 10 years ago, the last democrat I voted for was Jimmy Carter. I am an independent but there were years when I would choose not to vote a straight party ticket, not because I did not cast all of my votes to the republicans, but because I wanted the satisfaction of pulling the levers multiple times.

    What has caused the difference? Perhaps several things. First, the sheer arrogance and bullheadedness which has created gridlock-by both parties-disgusts me. Where else can one work, not do their job, and still get paid? Then there is the issue of trust. So many politicians speak from both sides of their mouth, saying whatever they feel is expedient at the moment. Regardless of how one feels about Obamacare, I am simultaneously repulsed by the fact that we cannot seem to be provide basic healthcare for the common citizen (it’s an embarrassment) but yet angered that if Obamacare is so good, why are national representatives and their staffs exempt? Whatever happened to lead by example?

    I do not like the idea of a business, such as a fast food restaurant, being forced to pay a wage that is not consistent with their business model. When I grew up, McDonalds was a teenager starter job, now its expected to be a living wage. With full respect to restaurant service workers, how did we get here? The only conclusion I can come to is that we have become less skilled over time. The key of course is to provide the immediate life ring, while providing the skill training to improve their lot over time. Education in its many forms is of course the answer.

    Perhaps I am optimistic because if I can alter my position on the issue, perhaps it will resonate with others too. And Indeed, Bernie has reached a level of individual support that is far greater, and far earlier, than any other candidate (if my data is correct). And I do not worry about the social-bent on a larger scale, because a Sanders administration would still have to deal with the conventional parties. But oh what a wake-up call that would make. (Apologies if I hijacked this thread, but the topic can be a slippery slope.)

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  7. Helen  February 9, 2016

    Your comments are very interesting; however, I’d like to add that I am 81 years old and widowed. I had been employed for more than 35 years, and my husband had also worked for the same amount of years. I left work to be a caregiver for my husband. Currently, my monthly income is $55 less per month – Medicare and Medicare Part D created the problem. Medicare did not get a cost of living increase, and Medicare Part D costs increased.

    In my opinion, Medicare Part D was created mainly to keep people from buying prescriptions from Canada. Canada was mentioned on the last page of the document that explained Medicare Part D. I was able to realize a handsome savings by buying prescriptions from Canada. I had been paying $700/month in the US. Part D did almost nothing to make it less, but Canadian prescriptions did. Big PHARMA has been the recipient of more favors than I care to mention.

    Socialism seems to be a scary word for many, but we are currently living with socialism programs. What would I do without them? We have to elect politicians who aren’t focused on lining their pockets with political contributions, PACs, etc. and remember why they were elected.

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