Kentucky's Income Gap Increases for the Third Year in a Row |
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CONTACT: Amy Watts FRANKFORT, KENTUCKY (October 19, 2000) — An analysis of recent Census data by the Kentucky Long-Term Policy Research Center finds that the gap between families at the lower and upper ends of the state’s middle income group has increased slightly over the past three years and remains higher than the national gap for families at the same income levels. Specifically, the Center examined data from the U.S. Census Bureau’s March 2000 Current Population Survey on Kentucky family incomes at the 75th and 25th percentiles to measure, as previous national studies have, the relative gap between upper and lower “middle-class” families, rather than those at the extremes of the economic scale. While the difference between the income gains for families at the 75th percentile compared to those at the 25th percentile remained unchanged at the national level, they increased slightly in Kentucky, from 3.0 in 1996 to 3.1 in 1997 to 3.2 in 1998. Nationally, the 75-25 ratio remained constant at 3.0 during the three-year period examined; that is, families at the 75th percentile realized income gains 3.0 times greater than families at the 25th percentile. All incomes were examined in constant 1998 dollars and adjusted to represent a family of four. Figure 1 illustrates the 75-25 ratio for Kentucky and the United States over a 21-year period, from 1977, about when income inequality began to rise, to 1998. As shown, these ratios have risen steadily since 1977 when they stood at 2.5 and 2.6 for Kentucky and the United States, respectively. While the gap has been increasing and continues to do so, it is important to note that incomes at every rung of the income ladder have increased during the 1990s. Many explanations have been offered for the rise in income inequality over the latter part of the century; however, most researchers agree that increasing returns to skill as a result of globalization and technological change are primarily responsible. Some attribute the widening gap to a changing labor market regulatory structure, which has allowed declines in the real minimum wage and worker bargaining power. Changes in family composition are also believed to be a partial contributor to the growing divide. Family fragmentation has resulted in more single-headed families, most of which are headed by women, and single-person households that generally have lower incomes than those with at least two wage earners. However, given the strong relationship between wages and income, most researchers see technology and globalization, which have driven a wedge between the value of high-skilled and low-skilled labor, as the primary cause of increasing income disparity. Kentucky’s gap may be growing faster than the nation’s due to its relatively smaller supply of high-skilled workers. Retention and graduation rates for higher education, as well as college-going rates, also remain considerably lower in Kentucky than at the national level. It is important to note, however, that people are not locked into an income percentile for their entire lives. A 1992 study by the U.S. Department of Treasury, based on a nationwide sample of 14,351 income tax returns filed from 1979 through 1988, suggests there is considerable mobility between income levels. Of the people in the lowest income quintile in 1979, 21 percent rose to the second quintile, 25 percent to the middle, 25 percent to the second-highest, and 15 percent moved up to the top quintile. In other words, 86 percent of those in the bottom income quintile in 1979 had managed to raise their incomes by enough to move to a higher quintile by 1988. Still the gap between the highest and lowest quintiles is much larger today, meaning that people in the lower quintiles have more ground to make up than in 1979. “Increasing income inequality, which is due primarily to increasing returns to skill, underscores the importance of equal access to education and investments in the development of human capital,” observed Amy Watts, a policy analyst with the Kentucky Long-Term Policy Research Center who conducted the analysis. “Given our state’s historically poor showing in trends regarding educational attainment at all levels, Kentuckians need to become particularly sensitive to the relationships between education, skill, and earnings potential.” In an effort to address these and other issues, the Kentucky Long-Term Policy Research Center is partnering with the group, Kentucky Leaders for the New Century, at its annual conference on November 13 and 14, 2000, at the Northern Kentucky Convention Center in Covington. Information about the conference is available online at www.kltprc.net/conference2000.htm or by calling 502-564-2851 or 800-853-2851, ext. 10. The Center will release its final report on the state’s income gap as part of its biennial trends report in December 2000. A Note on the Data : The Census Bureau’s Current Population Survey is a monthly survey of about 50,000 households conducted by the Bureau of the Census for the Bureau of Labor Statistics. The March Supplement provides detailed information on income in addition to the monthly questions on labor force participation. The Census Bureau defines income as money income (exclusive of capital gains) received the previous year. It is important to note that this represents income received before personal income tax, Social Security, or other such payments have been made. In addition, this definition does not include any nonmonetary benefits such as energy assistance, health insurance, or food stamps. Another point made by the Census Bureau reveals that studies have shown a tendency for persons to underreport income from sources other than wages and salary. |