In many states, the recovery is making the income gap worse

By:  Niraj Chokshi

The income gap in America has been widening for decades and the modest three-year recovery did little to change that, according to new Census data.

The new data suggest that despite modest recoveries in many states, the middle class has been shrinking while households have been added in the lowest and highest income brackets. In many states and nationally, the highest income brackets saw more growth than the lowest, but households in the middle brackets continued to decline. The state-by-state data compare incomes from a pair of three-year periods: 2007 through 2009, a span that included the Great Recession, and 2010 through 2012, a period that included the ongoing and modest recovery.

Growing Income Divide

For years, the wealthiest 1 percent have amassed income more quickly than the rest. From 1979 through 2007, for example, the top 1 percent of households saw income grow by 275 percent, according to a nonpartisan Congressional Budget Office study. Compare that to the bottom fifth of households, which saw income gains of only 18 percent over that time. Recent Nobel Prize winner for economics Robert Shiller, who is known for creating a closely tracked home-price index, last month called income inequality “the most important problem that we are facing now today.” And just last week, President Obama’s nominee to lead the Federal Reserve, Janet Yellen, called income inequality “an extremely difficult and to my mind very worrisome problem.”

Though rare, the recovery was strong and reduced inequality in some states, such as North Dakota, where an oil boom has provided a sustained economic boost. There, the number of households in the lowest half of income brackets shrank, while more joined the highest income brackets, a trend that suggests broad upward mobility. But in most states—and nationally—the data show the income gap worsening. In Michigan, for example, more than 65,000 households fell out of the middle-income brackets. That loss was counterbalanced by the addition of some 38,000 households, but only at the lowest and highest income levels.

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