Although average real income in the United States increased by more than a third between 1979 and 2007, not all workers benefited equally. In each of the 50 states, income growth among the top 1% of earners rapidly outpaced that of the bottom 99%, according to a recent study.
In four states — Alaska, Michigan, Nevada and Wyoming — average income increased exclusively for the top 1% and declined for the bottom 99%. In another six states, the top 1% accounted for more than two-thirds of all income growth between 1979 and 2007, while the income of the bottom 99% grew at a much slower pace. Based on a report published by the Economic Policy Institute (EPI), 24/7 Wall St. reviewed the 10 states with the most lopsided income growth.
In many of the states with the most lopsided income growth, real average income rose little, if at all, between 1979 and 2007. While the average income of the bottom 99% rose 19% nationwide, it rose less than 5% in eight of these states.
In an interview with 24/7 Wall St., Mark Price, coauthor of the study and a labor economist at the Keystone Research Center, said that to many observers the issue of income inequality is a story about Wall Street’s growth. But “It’s not just a story of the financial markets in New York City,” Price said. “Over time, that [top] group in each state is accruing an increasingly larger share of the growth in income.”
In fact, as of 2012, the financial sector comprised a larger share of the economy than in the United States overall only in three of the 10 states with the most imbalanced income growth. Additionally, the financial sector contributed among the least in four of these states. The financial industry accounted for just 2.3% of gross domestic product (GDP) in Wyoming in 2012, the lowest share of any state.
Another factor that does not appear related to uneven gains in income is economic growth. Price told 24/7 Wall St., “Looking at growth and GDP over time is a pretty blunt instrument,” and the relationship between unbalanced income gains and economic growth is weak.
GDP growth was the largest in Nevada, Arizona and Florida between 1979 and 2007 — all among the 10 states with most imbalanced income growth. However, among the remaining seven states were also Alaska and Michigan, for example, where GDP growth lagged much of the rest of the nation.
State tax structures, too, may not play as large a role as many observers may believe. Price noted that, for most Americans, the decision of where to live was not tied to taxes. While three states with the most uneven income growth did not levy an income tax, three of the other 10 states — Hawaii, New York and Oregon — had exceptionally high top income tax rates.
However, Professor Richard Burkhauser, the Sarah Gibson Blanding Professor of Policy Analysis at Cornell University, added that taxes and transfer payments should not be ignored. In an email to 24/7 Wall St., Burkhauser, who has argued against the significance of income inequality said, “Government tax and transfer policies [can] dramatically redistribute income from those who have large amounts of taxable market income to those who do not.”
Still, according to Price, inequality in income growth “is a trend which should concern policy makers independent of the impact of taxes and transfers,” and that incomes — net of such considerations — have still disproportionately risen for the wealthiest 1%.
To determine the 10 states with the most skewed growth in incomes, 24/7 Wall St. reviewed income growth figures from 1979 to 2007 from “The Increasingly Unequal States of America,” a study by Estelle Sommeiller and Mark Price published by the EPI. We also reviewed figures from 2009 to 2011 from the same study. The authors derived average income growth from taxable income data, net of inflation. Additionally, we also reviewed state GDP figures from the Bureau of Economic Analysis, unemployment data from the Bureau of Labor Statistics and an assortment of figures from the U.S. Census Bureau’s 2012 American Community Survey.