Income Inequality Grew in Pennsylvania and Most States over Past Two Decades

Middle- and Low-Income Families Have Made Few Gains since the Late 1990s, and Things Could Get Worse, Economist Says

The income gap between the richest and poorest families, and between rich and middle-income families, grew significantly in most states, including Pennsylvania, over the past two decades, according to a study released today by the Keystone Research Center in Harrisburg and KRC’s national partners, the Center on Budget and Policy Priorities and the Economic Policy Institute.

The study, conducted jointly by the two Washington, DC-based non-profit groups, found that since the late1980s, although Pennsylvania fared somewhat better than other states with regard to income inequality, the richest fifth of families in the Commonwealth still saw their average income go up by 58.8%, while the incomes of the poorest fifth increased by just 8.2%.

The study, which took into account inflation, federal taxes, and government subsidies such as food stamps, housing vouchers, and subsidized school lunches, found the income of Pennsylvania’s wealthiest families had pulled considerably away from the incomes of other families.            

According to the report, the average income of the richest top 5% of Pennsylvania families increased by $80,075, or nearly 59%, from $136,141 to $216,216. The average income of the poorest fifth of families increased by $1,438, or just over 8%, from $17,522 to $18,960. The middle fifth of families saw their average incomes increase by $7,391, or 17%, from $44,374 to $51,764. These figures reflect changes over the past two decades.

Mark Price, PhD, a labor economist with the Keystone Research Center, said the income gains made by low- and middle-income families since the 1980s were the result of the tight labor markets of the late 1990s. But since then, he said, the incomes of the top 5% have continued to grow, while the incomes of the middle fifth have remained essentially unchanged, and the incomes of the bottom fifth actually declined.

“The period since 2001 will likely be the first economic expansion since World War II that fails to produce significant growth in median family incomes.” said Price. “And now the Pennsylvania economy may be sliding toward recession, which could mean income declines for many families over the next several years.”

Since the late 1990s, the report shows, the average income of the poorest fifth of Pennsylvania families decreased by $1,281, from $20,241 to $18,960. Over the same period, the average incomes of the middle fifth and the richest fifth of families were unchanged. The only income group to experience substantial income gains since the late 1990s was the richest 5% of families, who saw their incomes increase by $25,674, from 190,541 to $216,216.

The findings of the new report, Price said, are consistent with the groundbreaking analysis of Pennsylvania taxable income data in last year’s State of Working Pennsylvania, the Keystone Research Center’s annual examination of the state’s economy. In that study, Price said, KRC found that “the more narrowly we defined top incomes, the greater the growth in average incomes we observed.

“The greatest income growth in Pennsylvania took place among small fractions of the top 1% of earners,” Price noted.

What both reports indicate, Price continued, is that the Commonwealth needs a more comprehensive economic plan and economic strategy if it hopes to create broadly-shared prosperity that embraces the middle class.

With the presidential primary campaign in full swing in Pennsylvania and the economy ranking as the number one issue for voters, now is also the time for state leaders and the presidential candidates themselves to address such a plan, added economist Stephen Herzenberg, PhD, executive director of the Keystone Research Center.

“Senators Clinton, Obama, and McCain need to show that they recognize the problem of growing economic inequality,” Herzenberg said. “They also need to offer solutions powerful enough to reverse current trends and to create a 21st century economy in which a rising tide once again lifts all boats.

“The scale of the inequality problem in America is approaching that of the late 1920s and early 1930s,” Herzenberg said. “Are these candidates offering solutions on the scale of the New Deal?”

The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. The Economic Policy Institute is a nonprofit, nonpartisan think tank that seeks to broaden the public debate about strategies to achieve a prosperous and fair economy.

The Keystone Research Center is a Harrisburg-based research organization and leading source of independent analysis of Pennsylvania’s economy and public policy. Much of KRC’s research is available free of charge on the Web at http://www.keystoneresearch.org.