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In the US, the rich are getting richer and the poor are getting poorer, study concludes

CNBC logo CNBC 7/19/2018 Carmen Reinicke

The rich are getting richer and the poor are getting poorer, at least in the United States.

The top 1 percent of families took home an average of 26.3 times as much income as the bottom 99 percent in 2015, according to a new paper released by the Economic Policy Institute, a non-profit, nonpartisan think tank in Washington, D.C. This has increased since 2013, showing that income inequality has risen in nearly every state.

The paper looked at the income of families across the nation and assessed inequality at the state, metropolitan area and county level using data from the IRS. The incomes are averages of the IRS summaries of taxpayers in each income range.

Mind the gap

To be in the top 1 percent of earners in the United States in 2015, a family would have to have brought in $421,926 in pre-tax dollars. What qualifies as the top 1 percent varies by each state, and the states with the highest thresholds are California, Connecticut, District of Columbia, Massachusetts, New Jersey and New York.

Nationwide, the average income of the bottom 99 percent is $50,107 per family. This also varies depending on geography.

By looking at income data on the state and county level, it’s possible to get a more local picture of the trend of inequality.

When inequality came up, “often the conversation would turn to, well, that’s New York City, it’s not my state,” said Mark Price, a labor economist at the Keystone Research Center and co-author of the EPI paper.

“Rising inequality affects virtually every part of the country, not just large urban areas or financial centers,” said Estelle Sommeiller, a socio-economist at the Institute for Research in Economics and Social Sciences in France and co-author of the paper. “It’s a persistent problem throughout the country — in big cities and small towns, in all 50 states.”

Between the years 2009 to 2015, the incomes of those in the top 1 percent grew faster than the incomes of the bottom 99 percent in 43 states and the District of Columbia. In nine states, the income growth of the top 1 percent was half or more of all income growth in that time period.

A recent trend

This trend is a reversal of what happened in the United States in the years during and after the Great Depression. From 1928 until 1973, the share of income held by the top 1 percent declined in nearly every state.

The report from the EPI attributes that growth to a different atmosphere for workers, where the minimum wage generally was steadily rising and they were able to join unions and bargain for rights.

Today, while unemployment remains low and the economy is doing exceptionally well, wage growth has remained stagnant.

“When you look at economic expansions, it’s in that recovery that you see income growth – businesses recover, reorganize, workers find jobs,” Price said.

In those expansions since 1973, there has been less income growth for the bottom 99 percent, said Price.

Meanwhile, CEO pay has increased from about 20 times the typical worker’s pay to 271 times greater, from 1965 to 2016, according to 2017 a study by the EPI.

As the economic recovery continues, Price said that it is critically important to continue to look at growth and specifically how it is distributed.

“For some reason, the economy just doesn’t have the generation of wage growth we’d like to see,” Price said. “We like to focus a light on the way that income is distributed to share that the people who make decisions are benefiting from the economy in a way we might not all be.”

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