Report Finds Income Gap Widening

by Hugh McQuaid | Aug 30, 2012 3:52pm
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Posted to: Jobs, Labor, Taxes

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From 2006 to 2011 the wage inequality gap between the wealthy and everyone else continued to grow in Connecticut, according to a new study by Connecticut Voices For Children.

The report, released Thursday, studied wage, unemployment, and job sector trends throughout the recession and subsequent recovery. Policy officials at Voices For Children said their findings show the state on an “economically devastating course.”

“Probably the most striking thing we’ve seen is that Connecticut’s middle class is being hollowed out,” Kenny Feder, a policy fellow for Voices, said. “Wealth is increasingly being concentrated among the state’s wealthiest citizens.”

Wage growth among high earners during the five-year period was four times that of wage growth for lower earners, Feder said. Adjusted for inflation, the median wage growth was around 2 percent, he said. Meanwhile, wage growth rose by 11 percent for those in the 90th percentile, the study found. In reality, the findings are understated, Michael Sullivan, a spokesman for the advocacy group, said.

“Wage measures tend to understate inequality because they don’t include investment income and capital gains,” he said. “The measures we’re using in this report, by definition understate inequality.”

Making matters worse, the state has been adding jobs in the low paying food services and healthcare services sectors but losing high paying manufacturing jobs. The manufacturing sector shrank by 14 percent during the period Feder said. The sector did see some signs of recovery between 2010 and 2011 when it added back 642 of the 27,448 jobs that were lost.

While jobs have increased in some low-paying sectors, wages at those jobs have decreased, he said.

The study also broke down unemployment trends by race demographics. While the state’s unemployment rate sits at 8.5 percent generally, the number is much higher among minority groups.

Feder said over the period examined by the study, the unemployment rate among black and Hispanic workers rose every single year. In 2011, the jobless rate for black workers was 17.3 percent and 17.8 percent for Hispanics, he said. Meanwhile the white unemployment rate fell to 7 percent, he said.

“Black and Hispanic workers have not experienced an economic recovery. These disparities between these groups were even greater,” Feder said.

The report also found that a college degree has increasingly become a requirement for a good job. The unemployment rate among workers with only a high school diploma was almost three times higher than those with a bachelors degree, he said.

College grads are also making more money. The median wage among workers with a four year degree was $31, that’s twice the median wage of high school graduates, Feder said.

“When we take a big picture look at what’s going on in Connecticut, what we see is that groups that can afford to suffer the least are also the ones who were experiencing the least recovery from the recession,” he said.

So what’s to be done about the worrisome trends? The Left-leaning think tank included some recommendations for turning them around in its report. Voices For Children Senior Policy Fellow Orlando Rodriguez said the state could help reverse the disparities by investing in education and fostering better paying jobs.

Rodriguez said that education investments are needed at all levels, especially the pre-kindergarten level. Improving community colleges would also help train more people for high paying manufacturing jobs, he said.

Asked if the education reform package passed this year helps to address some of the group’s education concerns, Rodriguez said it did, but it remains to be seen just how much.

“We’re going to have to wait and see. The proof is in the pudding and in the implementation. Just because we passed the law doesn’t necessarily mean anything happens,” he said. “... I don’t know that we’re going to really know for sure until we’ve had a couple years to see what the tangible fallout from the reforms.”

Rodriguez also recommended strengthening the Earned Income Tax Credit, which was passed last year at 30 percent. He said he would like to see it at 40 percent.

Raising the state’s minimum wage to at least $10 an hour would improve the quality of jobs, he said.

However, Fergus Cullen, executive director of the Right-leaning think tank, the Yankee Institute, disagreed with most of Voices’ recommendations. He said raising the minimum wage would only add to unemployment.

“If you increase the cost of labor, you’re going to get less labor,” Cullen said.

Policy Fellow Matt Santacroce said a series of economists have said that the relative employment impact of raising the minimum wage is fairly modest.

“What we do know ... is that the stimulus impact of raising the minimum wage is real and it’s substantial,” he said. “By putting a thousand or so dollars a year in the pockets of these low-income workers who are very likely to spend it in local economies, in small businesses and this sort of thing has a very market stimulus effect.”

Cullen also objected to increasing the Earned Income Tax Credit, something the Yankee Institute opposed before it was passed. Cullen said part of the reason they argued against adding a state credit on top of the federal program was they felt it was only a matter of time before someone tried to expand it.

“Once they get in, all they do is lower the threshold, raise the rates and expand,” he said, adding that the program was essentially successful people subsidizing less productive people.

Already the top six percent of earners pay as much in taxes as the bottom 94 percent combined, Cullen said.

“The idea that you can tax successful, talented people without expecting to get fewer of them… If you tax something you get less of it,” he said.

Tags: Voices for children, income disparity, unemployment, recession, yankee institute

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