Income Polarization Gets Worse

Last year, the U.S. Census Bureau reported that the economy grew while incomes stagnated and poverty rates increased. How could that be? The answer is that some people did very well while others struggled.

Families in the richest 20 percent – the top fifth in household income – made 7.3 times more than those in the bottom fifth. New York has the distinction of being the state with the largest income disparity: the average income of the top fifth was 8.1 times greater than that of the bottom fifth.

These are findings of a joint study by the Economic Policy Institute and the Center on Budget and Policy Priorities.

Incomes Decline

There is a two-fold dynamic at work here over the past 20 years. While increases in wages and in investment income helped the rich get richer, those at the bottom of the wage scale actually saw their incomes decline relative to inflation.

The Fiscal Policy Institute, which studies budget and tax issues in New York State, pointed to several factors contributing to income inequality in the state: the decline in manufacturing jobs, globalization, the expansion of low-wage service jobs, immigration, the erosion of the minimum wage, and weakened unions. The result is wage stagnation for the lowest-earning 70 percent of the state’s workforce, those without a college degree.

As bad as the situation is for low-income workers in the rest of the state, it’s even worse in New York City, where the disparity in income is greater but living expenses are higher. Over 20 percent of the city is living in poverty, the great majority African American and Latino residents.

Manufacturing jobs are not going to return to the city. And globalization – and the outsourcing of some types of jobs overseas – is a fact of life now. But there are things that government can do to strengthen the income of low-wage workers and those seeking to enter the workforce without a college education.

Policy Responses

The Community Service Society’s labor market reports and survey data convinced the mayor to establish a Construction Opportunities Commission to ensure that low-income New Yorkers and recent high school graduates are included in the jobs and apprenticeships that will be opening up in the coming expansion of construction projects in the city.

In 2004, the City Council provided $10 million in funding for job training for the chronically unemployed, largely in response to research on the extent of black male joblessness provided by the Community Service Society. The Council budgeted another $18 million last year.

Some of the funds coming to the city’s school system from the Campaign for Fiscal Equity lawsuit should be invested in revamping vocational education courses to reflect the realities of the changing economy. Funding also should be used for a “second chance” program to reach the vast numbers of young people who drop out of high school.

Low-income
wage stagnation

The state can help by reversing the movement toward reliance on unfair taxes. High-end personal income taxes have been cut while sales and property taxes – which hurt lower income New Yorkers - increased. So did tuition for CUNY and SUNY, a hidden tax on lower income families.

The state should also ensure that the private sector pays its fair share in taxes. Over the last 25 years, revenues from the state’s main tax on corporations fell by more than 50 percent relative to the size of the state’s economy. Workers’ wages have increased by 14 percent in this decade compared to a 65 percent increase in corporate profits. Meanwhile, health care, housing, and energy costs keep rising.

Polarization of income at these levels is dangerous at a time when the traditional deal between workers and management is fragmenting and the federal government is trying to downsize its involvement in helping ordinary Americans. Our wage and tax policies should be making it easier to achieve upward mobility for everyone rather than keeping some people down.

From the New York Amsterdam News
February 9 - 15, 2006