The economic gap between the richest and poorest households in Ohio has widened in the last three decades, because the incomes of the poor have stagnated while the incomes of rich have soared, according to a national report released on Thursday.
The richest 5 percent of households in Ohio on average earn almost 11 times as much income as the poorest 20 percent, according to the report by the Center on Budget Policy Priorities and the Economic Policy Institute.
The income disparity is a product of the richest households seeing their incomes grow by 85 percent between the peak economic years of the late 1970s and the mid-2000s, while the poorest saw no gains.
“Our economy is not working for everyone — it is just working for those at the top,” said Amy Hanauer, executive director of Policy Matters Ohio, a nonpartisan think tank. “The level of inequality we see is unacceptable.”
But the income divide in Ohio is smaller than in most other states, and some policy analysts said the report overstates the extent of the inequality problem and reaches the wrong conclusions about solutions.
The average income of the poorest 20 percent of households in Ohio was $21,054 between 2005 and 2007, according to the report’s analysis of inflation-adjusted data. Average incomes only increased by less than 1 percent from $20,936 between 1977-1979,
By comparison, the richest 5 percent of households in the state saw their average incomes grow to $245,190 in 2005-2007, the report said. The income of these households was up 85 percent from $132,491 between 1977-79. The report compared those periods because they were the peaks of the business cycle, experts said. The data is post federal taxes, and includes earned-income tax credits and calculates the value of food stamps and housing subsidies.
The growing income gap
Income inequality has steadily increased in the last 30 years.
Between 2008 and 2010, the richest 5 percent of households in Ohio earned about 11 times as much as the poorest 20 percent. Three decades earlier, the richest households earned about 6 times as much.
The prolonged growth in income inequality is tied to good-paying jobs being shipped overseas as a result of of globalization, and long periods of high unemployment meant employers did not have to offer better pay to attract workers in low-wage occupations, said Elizabeth McNichol, senior fellow with the Center on Budget Policy Priorities in Washington, D.C.
High-income earners enjoyed a disproportionate share of the country’s economic growth, and the booming stock market primarily benefited the affluent who own capital investments, she said.
Rising inequality is “contrary to this basic American belief that hard work should pay off, and it shouldn’t really depend on where you are on the income scale,” she said.
Research shows that people on the poor end of the economic divide have worse outcomes than their affluent counterparts, and inequality is linked to social problems such as teen pregnancy, dropping out of school and incarceration, said Shawn Cassiman, assistant professor of social work at the University of Dayton.
“Almost any social problem we can identify is exacerbated by rising levels of inequality,” she said.
The economy suffers also from inequality because people on the low end of the economic spectrum cannot increase their spending because their wages are stagnant, she said. Businesses cannot hire when there is weak demand for their products.
Cassiman, Hanauer and McNichol said “fair” tax policies can counteract rising inequality by raising revenue from affluent residents to pay for programs that benefit lower-income residents. They said adequate taxation of the affluent are important in an unequal economy, because it can pay for work-assistance programs and child-care and transportation subsidies that provide low-income residents with a better chance of climbing into the middle class.
But the report’s findings fail to consider other important types of compensation, such as health benefits, which have increased, said Greg Lawson, policy analyst with the Buckeye Institute, a nonpartisan think tank in Columbus.
“Salaries haven’t necessarily always increased, because a greater percentage of people’s compensation is coming in the form of other types of benefits,” he said.
Lawson said also the standard of living of all income groups has improved substantially, and workers earn more over the course of their careers, meaning they are not forever stuck in an income category. Lawson said growing the economy through smart tax policies that do not burden businesses and gives them an incentive to hire and create jobs will help Ohioans of all income levels.
“There is reason for legitimate concern — and we want everyone to do well — but if we start trying to go too far with redistributing because we think that’s what’s ‘fair,’ we’ll end up with less stuff to redistribute in the first place,” he said. “A rising tide helps all boats.”
The income gap in Ohio between the richest and poorest residents is not as wide as it is in 35 other states. Arizona has the largest divide, where the richest 5 percent of households earn 17 times as much as the bottom 20 percent. Iowa has the smallest divide, where the richest households earned about nine times as much as the poorest 20 percent of households.
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