Income inequality: You’re doing it wrong

April 12, 2008

The latest report on income inequality by state says:

The gap between the richest and poorest families, and between the richest and middle-income families, grew significantly in most states over the past two decades, according to a new study by the Center on Budget and Policy Priorities and the Economic Policy Institute

Where did the gap grow the most, you ask? Connecticut, Rhode Island and Massachusetts. Besides being hard to spell states, they also share another trait; a high minimum wage. Here’s how they rank:

#2 Massachusetts
#5 Connecticut
#7 Rhode Island

Shouldn’t income inequality be shrinking in states with higher minimum wages?



9 Responses to “Income inequality: You’re doing it wrong”

  1. Quakerjono Says:

    Theoreticaly, perhaps, but if you look at the trending data from the past several years, the upper income levels have been getting increasingly “richer” while the poorest levels have been getting increasingly poorer and the middle class has been breaking even at best. Furthermore, as energy and food prices skyrocket, it’s the poor and middle class who are going to bare the brunt of this. Even with a high minimum wage, if that wage doesn’t increase faster than the cost of food or gas, then you still slip lower and lower into poverty and the income gap grows as proportionally more and more of lower-income and middle class budgets are eaten up providing necessities.

  2. superdave524 Says:

    Sticky wicket, that.

  3. Actually, the reason is probably more prosaic; the higher the minimum wage, the fewer people you hire.

    What people refuse to realize is that capitalism is going to produce income inequality because — surprise! — people have varying levels of expertise and adroitness in navigating the system, and the degree to which you are rewarded is dependent thereon.

    Furthermore, the tradeoff is this; if you make skilled and unskilled labor cost the same, you disincent the process of becoming skilled and you incent the early in. What kid is going to want to go to school to become a doctor if ultimately they make the same as someone at the checkout register?

  4. John in IL Says:

    the poorest levels have been getting increasingly poorer and the middle class has been breaking even at best.

    According to the full report, that is only true for Rhode Island and Connecticut. The rest of the states saw gains in income for the bottom fifth(Mass. had an increase of 1.6%). For middle income families, all states showed a rise in income over the same time period (in inflation adjusted dollars).

  5. Quakerjono Says:

    That would seem to specifically contradict the information presented in the executive summary then, which states that, since the late 1990s, average income for the lowest fifth of the population has decreased by 2.5% while it has grown for the upper fifth by 9.1%. Income for the middle fifth have grown by 1.3%, far below the rate at which income has increased for the richest fifth of the population.

  6. John in IL Says:

    “over the past two decades” is an important qualifier.

  7. superdave524 Says:

    I’ve said it before, you gotta start with the market, because that’s the ultimate human nature. But make no mistake about it: the market rewards people for their ability to make money. The ability it make money is not the same thing as providing important goods and services, though they are cousins. I was in private practice for years, but never made much money because it didn’t matter enough to me. A former client came up to me beaming in the Piggly Wiggly the other day, and said to my kids, “Your dad is a great lawyer, and he’ll help you even if you don’t have any money”. True. Net result? Good lawyer, bad businessman means two laid off employees and back to the public defender’s office, where the government can pay me to help people. Who’s making money practicing law? Well, there are a lot of good ones who make money, but there are also a lot of ambulance-chasers who pay wrecker companies and morticians to send them cases and they turn cases quickly, occasionally at the expense of their ill-informed clients. Helping people is often not economically feasible, but there are- occasionally, at least- things more important than the bottom line. As a society, we get to decide where to draw the line.

  8. John in IL Says:

    Good intentions don’t pay the bills. I compared the income growth for bottom 20% of the population(according to the report) over the last twenty years for all states to current minimum wage rates in those states. The bottom 25 states (with the lowest minimum wages) saw income growth of 15%. The highest paying states saw income gains of 9%. Sure, there are other factors, but shouldn’t we try to figure out if raising the minimum wage is doing what we want it to do.

    If you want to put more money into peoples pockets, raise the EITC. It spreads out the expense to all taxpayers. It doesn’t single out business owners whose choice is to either raise prices or lay off workers to make up the difference in the artificial wage hike. It also has the advantage of making it a more transparent cost to society.

  9. John in IL Says:

    Or you could just give the less fortunate the money. But then you run into the problem of them spending it in ways that you don’t like.

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