Americans don’t like to talk about their incomes.
Ask about family, religion or politics and you’ll likely get an answer. Ask someone how much he or she makes, and you’ll probably find yourself trying to talk to a clam.
It’s a strange thing.
I believe this unwillingness to talk about income is one element of why income disparity thrives in America. People don’t have much of an idea what others make, and chances are their informal perceptions are mistaken.
A U.S. News and World Report story discussed this recently:
According to Robert Gordon, a social sciences professor in Northwestern University’s economic department, few people are truly aware of their place in the economic hierarchy.
“People have only a vague idea of their income, based primarily on their income-tax returns, if they are filers,” he says. “If they are not filers, they are in a large lower group that has only a vague idea of what their income is.”
Gordon says popular culture also limits understanding of class, reinforcing the idea that all people are in the middle.
“Sixty years of universal television-watching has fostered the idea that everyone is in the middle class. Most TV sitcoms are about people like us, except sillier,” he says. ” There’s very little media portrayal of a truly upper class that would make the vast middle feel that they were in some different sphere.”
So just how much income disparity is there in the United States? I wrote two stories on the subject in today’s Press & Dakotan, focusing primarily on South Dakota.
The growing consensus is that income and wealth disparity are indeed problems that not only tear apart the social fabric but also threaten the economy. Addressing the gap requires political action. It won’t go away on its own.
Here is the first story. The second installment can be found here.
South Dakota is being pulled apart.
That is the finding of a recent report by the Center on Budget and Policy Priorities and Economic Policy Institute called “Pulling Apart: A State-by-State Analysis of Income Trends.”
The pulling apart of the title refers to the growing annual income gap between top-earning households and everyone else.
By the mid-2000s, the data in the study shows the divide in South Dakota was growing faster than in any other state but Mississippi. South Dakota ranks 38th in overall income inequality. It sits ahead of neighbors Nebraska (44th), Wyoming (48th) and Iowa (50th). North Dakota ranked 31st. The most unequal state was New Mexico, where the incomes of the top fifth of households was 9.9 times greater than the average income of the bottom fifth of households.
The authors of the report — Elizabeth McNichol, Douglas Hall, David Cooper and Vincent Palacios — contend that growing income inequality should be a concern to all Americans.
“It is a basic American belief that hard work should pay off — that individuals who contribute to the nation’s economic growth should reap the benefits of that growth,” they write. “Over the past three decades, however, the benefits of economic growth have been skewed in favor of the wealthiest members of society.”
Between the late 1990s to the mid-2000s, the drop in income among the bottom 20 percent of South Dakota’s households averaged 12.5 percent. The middle 20 percent of households saw their income rise by 7.9 percent, and the top 20 percent of incomes jumped 25.7 percent.
Developments in recent years have accelerated a much longer trend in South Dakota.
Between the late 1970s to the mid-2000s, the income of the bottom 20 percent of households has risen 24.3. Meanwhile, the middle 20 percent saw an increase of 48.6 percent and the top 20 percent’s income jumped by 91.7 percent.
By the mid-2000s, the poorest 20 percent of households had an average income of $22,000, while the richest 5 percent of households average an income 11 times that — $241,300. The middle 20 percent had an average income of $58,700.
In actuality, the disparity may be even greater than these numbers show, according to the report. Census data does not allow analysis of the gains of the top 1 percent, nor does it account income from capital gains, a source of income that accrues mainly to high-income households.
In the United States as a whole, the poorest fifth of households had an average income of $20,510, while the top fifth had an average income of $164,490 — eight times as much, the report states. In 15 states, this top-to-bottom ratio exceeded 8.0. In comparison, during the late 1970s, no state had a top-to-bottom ratio exceeding 8.0.
The primary source of income inequality is a growing wage gap, the report states.
“Wages are a key factor because they constitute about three-fourths of total family income,” the authors of “Pulling Apart” write. “Wages at the bottom and middle of the wage scale have been stagnant or have declined over much of the last three decades. The wages of the very highest-paid employees, however, have grown significantly.”
The growing gap in income inequality is unlikely to reverse in the near future, the authors predict.
The “Pulling Apart” study comes out at a time when U.S. Department of Commerce Bureau of Economic Analysis statistics show that South Dakota’s per capita personal income in 2011 was $44,217. That’s 6 percent higher than the national average of $41,560 and puts South Dakota at 13th in the nation. In 2001, the per capita income was only $27,865.
However, Dr. Reynold Nesiba, an associate professor of economics at Augustana College, notes that because per capita income is an average, it says nothing about the distribution of income in the state.
“For instance, although we know that income per person in South Dakota was $44,217, we also know that the median or middle four-person family in South Dakota did not have an income anywhere near that number times four. That would equal $176,868,” he said. “Instead, we find that, according to the US Census Bureau in 2009, a typical four-person family had a median income of only $68,064. Some folks at the top of the income distribution must be generating much higher incomes.”
Casting further doubt that the rise in South Dakota’s per capita personal income reflects an improvement in the standing of individuals across the economic spectrum are the findings of the Economic Security Index (ESI). It tracks the proportion of Americans who see their household income after paying for medical care and servicing their financial debts decline by 25 percent or more from one year to the next and who lack sufficient financial wealth (such as savings) to replace the lost income.
The ESI in South Dakota rose by 0.6 percentage points last year — putting it among only four states that saw an increase in economic insecurity. Kansas, Montana and Texas also experienced an increase in the ESI.
In 2011, 19.4 percent of people in South Dakota experienced the major economic losses measured by the ESI, compared with 18.8 percent in 2010.
The national average was a trend in the other direction — a 1.3 percent decline in economic insecurity. A nationwide drop in 2011 was the largest yearly decline over the last quarter century.
Helping to illustrate the economic difficulties being experienced by many South Dakotans, the U.S. Census Bureau issued a new index in November showing that 11 percent of the state’s residents live in poverty.
“It takes the household income and adjusts it for the geographical location, and it also accounts for the cost of housing, transportation and medical care,” said Joy Smolnisky, director of the South Dakota Budget and Policy Project.
She noted that the measure also accounts for income from sources such as food stamps and the Earned Income Tax Credit.
“That means about 88,000 South Dakotans are in a situation where they are not earning enough to make it,” she said. “That might be because they are not working or they are working jobs that don’t pay adequate wages.”
Those who find themselves at the bottom of the wage scale will find it difficult to accomplish the American Dream of climbing the economic ladder, research shows. Various studies have found that America lags behind Canada and much of western Europe when it comes to economic mobility.
According to the Pew Center on the States’ Economic Mobility Project, Americans raised at the bottom and top of the family income ladder are likely to remain there as adults. This phenomenon is referred to as “stickiness at the ends.”
Among Americans raised in the bottom quintile of the income ladder, 43 percent will remain there as adults and 70 percent of them will remain below the middle. When it comes to the top quintile, 40 percent will remain there as adults and 63 percent will stay above the middle.
“Only 4 percent of those raised in the bottom quintile make it all the way to the top as adults, confirming that the ‘rags-to-riches’ story is more often found in Hollywood than in reality,” according to the Economic Mobility Project. “Similarly, just 8 percent of those raised in the top quintile fall all the way to the bottom.”