Washington POST 1-24-00
By the Numbers
The Rich, Still Different From Most; 2 Surveys Show a Wider Gap, but the
Conclusions Are at Odds
By Peter Behr
Washington Post Staff Writer
Monday, January 24, 2000; Page F13
A stark picture of income inequality was drawn by a new report last week
arguing that in the midst of the 1990s' soaring economic boom, the poor and
middle class got poorer and the very rich got a whole lot richer,
particularly in the nation's capital.
Many economists and analysts agree about a growing trend of economic
disparity among American families, as reported last week by the Center on
Budget and Policy Priorities and the Economic Policy Institute in the
District.
for more see www.centeronbudget.org
But there is little consensus on the severity of the shift, why it is
happening and what, if anything, should be done about it.
The center's analysis, reporting a growing gap in wages for American workers
at the top, middle and bottom end of the pay scale, is challenged by a report
last week by Federal Reserve economists using a different approach. The Fed
economists found that the biggest factor in income inequality in the 1990s
was the stock market, not pay checks.
According to the center, the average annual income for the poorest one-fifth
of D.C. families declined by $1,510, or 17 percent, from the late 1980s to
the late 1990s, after adjusting for inflation. Families in the middle
fifth--those earning from $27,600 to $49,575 in 1990--took a comparable hit.
The average income for this group dropped by $5,950 over the decade, or 14
percent. Meanwhile, the average for the wealthiest fifth, those earning more
than $89,605, rose by $54,970, or 37 percent.
In Maryland, the report said, the poorest fifth had only a 4 percent increase
in average income, while the income of the middle fifth rose by 3 percent.
Those in the top fifth had a gain of 23 percent. Virginia's disparity was
less severe: a 3 percent drop in income for the lowest fifth; a 1 percent
decline for the middle group; and a 13 percent increase at the top.
Focusing on wages, the center argued that the causes of the shift include
government policies that encouraged immigration and imports, and governments'
refusal to strengthen the role of labor unions or raise the minimum wage.
"We're confident the top end is growing" disproportionately, said Liz
MicNichol, an economist at the center.
But the Federal Reserve study seems to undermine the center's argument about
wage inequality.
see http://www.federalreserve.gov/pubs/bulletin/default.htm
The biggest economic disparity among families was because of changes in
family net worth, including real estate and stock market holdings through
retirement plans or private portfolios, the Fed said.
>From 1995 to 1998, the average net worth of families with incomes of at least
$100,000 jumped to $1.7 million from $1.3 million, adjusted for inflation,
coinciding with the stock market's surge. But the net worth of families with
less than $10,000 shrank from 1991 to 1998. Net worth gains for families in
between increased the more wealth they had to begin with.
There are major differences in the center's and Fed's methods that could
explain part of these differences.
The center's attempt to portray changes in income inequality in the District
over the 1990s is particularly risky for several reasons, said Philip M.
Dearborn, president of the Greater Washington Research Center. First, the
government survey on which the center's report is based includes a relatively
small number of D.C. families, creating a large margin of error.
Secondly, the center's analysis covers a decade of demographic upheaval in
the District, when a large part of its middle class fled to the suburbs.
Given the significant migration of immigrants into the city over the decade,
the families that made up the poorest one-fifth 10 years ago may be quite
different from those in that group today, Dearborn said.
"I'm not confident of any of these numbers [about] the District," he said.
The strongest point of agreement in the center and Fed reports is the power
of education to raise family wealth by increasing skills and employability.
"Next to a lot of good luck, education is the great driver of income," a Fed
economist said.
Copyright 2000 The Washington Post Company; fair use reprint
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