Recent news stories (1/18) have underlined a disturbing trend in the American economy over the last 20 years: the increasing

2/14/00

KUFM / KGPR

T. M. Power

The Income Gap between Low and High Income Households in Montana

Recent news stories have underlined a disturbing trend in the American economy over the last 20 years: the increasing gap between high and low income families. Because this gap reflects the disparate range of economic opportunities open to different groups of citizens and their capacity to share in the American Dream, these statistics deserve to be taken seriously. We should be focusing significant effort at crafting public policies aimed at narrowing this economic gap.

While Montana has participated in the national trend of increasing inequality, there are some interesting twists to that story in Montana. Here are five unique features of the gap between low- and high-income families in Montana. The point here is not to minimize the problems of low- income Montanans but to understand how our local experiences relate to the national trends.

First, Montana’s ratio of high incomes to low incomes, the average income of the top fifth to that of the bottom fifth, was 9.3 at the end of the 90s. But that was significantly below the national ratio, 10.6. Fortunately, in the degree of inequality, we lag the nation; we are now where the nation was ten years ago.

Second, although Montana’s gap increased at an above average rate during the 1990s, over the 20-year period studied, Montana’s gap increased at only half the national rate. Over the whole period, Montana was among the ten states with the slowest growing gap between rich and poor.

Third, the growth in the gap in Montana was not due to rapid increases in the incomes of high-income families. For the 20-year period, Montana was one of two states where the increase in the real income of the wealthiest fifth was not statistically different from zero. In contrast, across the nation, the average high income family gained an additional $34,000 a year or 33% after inflation. Montana’s low income fifth saw their real incomes decline twice as much as their comparable national group, by almost $2,000. That is what caused the gap to increase.

Fourth, Montana’s low-income families are 17% below their comparable national group; Montana’s high income families are 26% below their national group.

Fifth, Montana workers with low educational attainment earn about as much in Montana as they could earn elsewhere in the nation; those with high educational attainment earn significantly less here than they could earn elsewhere.

To reduce the large and increasing gap between low and high income households, many public figures have argued that we have to “create more high paid jobs.” Such a strategy is unlikely to have much impact on the gap between high and low-income families for several reasons:

First, high paid jobs are likely to go to those types of workers who already have high incomes: the highly educated and skilled. Most of the high paid jobs being created in the economy are not accessible to those currently found in low paid jobs. That is partly why the gap has been growing.

Second, Montana has created a lot of high paid jobs over the last ten years: 15,000 construction jobs, 10,000 health service jobs, 5,000 engineering and management services jobs, 2,400 trucking jobs, and 1,700 high paid financial services jobs, for instance. Those jobs, however, went to those with specific skills, training, and education.

Third, the number of high paid jobs open to the young, less educated and less skilled workers has decreased drastically over the last 20 years. The blue-collar path to a middle class life-style has largely been closed to less-educated, younger workers, even in blue-collar jobs.

Fourth, the states with the highest average incomes also have the highest gaps between low- and high-income households. New York, California, Connecticut, and Rhode Island, for instance, inhabit the top ten list in terms of inequality. The average income of the lowest fifth in New York is the same as the lowest fifth in Montana even though average incomes in New York are 54 percent above those in Montana.

In order to successfully increase the income of low-income workers, their access to higher-paid jobs has to be increased. Since it is increasingly rare for employers to pay workers high wages regardless of their experience, skills, and education, it is simply day-dreaming to imagine that all we have to do is recruit the “right” type of employer to improve workers’ wages. Employers will be attracted to Montana partially because wages are low, and they certainly will take advantage of that economic fact. Businesses needing more highly skilled workers will recruit their workers from outside Montana before they employ existing less skilled residents. If our goal is to raise the wages of low-income workers, improving the productive characteristics of those workers is far more crucial and far more likely to be successful than recruiting “good industry.” In addition, that improved productivity can be carried by workers to their jobs wherever those workers happen to settle.

Recruiting foot-loose firms by handing out public subsidies, reducing taxes, cutting public services, and reducing environmental and safety standards is a strategy that is almost certain to have a negative economic payoff for Montanans. It impoverishes our communities and our schools while undermining our quality of life. It also will do nothing for those currently in low-paid jobs. Because of that, it is a high priced lottery ticket that is not worth buying!