KUFM / KGPR
T. M. Power
Income Inequality
in Montana
Recent analysis[1] of the degree of income inequality among the fifty states got some attention in the Montana press because it showed that the richest fifth of Montana’s families had the lowest average income for that group in the nation . Before we feel too sorry for our rich, those newspaper stories also pointed out that the poorest fifth of Montana’s families also had low incomes relative to the other states, in fact third lowest in the nation. Our middle-income families were fifth lowest among the 50 states. Of course all that tells us is that in straight dollar terms, family incomes in Montana are low across the board, about 25 percent below the national average.
One interesting exercise is to try to adjust those results for differences in the cost of living between, say, Montana and New York or Massachusetts. This can be crudely done by using differences in the cost of housing. When that is done, the results are revealing. Instead of being 25 percent below the national average, our family incomes are about 9 percent below the national average in terms of real purchasing power.[2] Even more interesting, most of this gap is associated with the richest fifth of our families, not low and middle income families. The poorest fifth of Montana families had almost the identical real income as the nation’s poorest fifth. The richest fifth of Montana’s families, on the other hand, were 13 percent below their national counterparts. Montana’s middle fifth of families were just 4 percent below the nation’s “middle class” families.
This suggests that living in Montana does not particularly disadvantage our low or middle income families. That is not the same as saying that our low income families are not disadvantaged. They most certainly are. These families are trying to survive on an annual income of $12,000, not enough to raise a family or support a couple anywhere in the nation. The point is not that they are not suffering deprivation but that they would be suffering a similar level of deprivation anywhere they lived in the United States.
But this analysis of the distribution of family income among different income groups was not intended to focus on the income of particular groups of families. Rather this analysis of the Current Population Survey information gathered by the Bureau of the Census was intended to focus on how income inequality has changed over time in the nation and the various states.
For the twenty-year period from the late 70s to the late 90s, Montana was the only state where neither the poorest fifth nor the richest fifth saw their incomes grow in real terms. In 45 of the 50 states the richest fifth saw their incomes grow faster than the poorest fifth. For the nation as a whole, the richest fifth saw their incomes grow six times as fast as the poorest fifth, making a large gap even larger. In Montana the gap between rich and poor did not change.
If we measure that gap between the richest and poorest fifths by the ratio of the average family income for each group, Montana’s richest fifth had incomes about nine times those of the poorest fifth. For the nation as a whole, that ratio was about 10, but in New York State the richest fifth had average incomes 12 times those of the poorest fifth. In this measure of inequality, Montana was smack in the middle of all 50 states, ranking 26th. It was clustered with other Western states, from Washington to North Dakota and Nevada to Colorado, that also had relatively smaller gaps between the rich and the poor.
Over that 20-year period, as already mentioned, the gap between rich and poor in Montana did not change much. Montana was in the lowest ten states in terms of the increase in inequality. Again we were grouped with other Western states, Colorado, Utah, New Mexico, the Dakotas, and Alaska, in somewhat resisting the national trend towards increasing income inequality between high and low income groups.
If our concern is not with low-income families but middle-income families, Montana also resisted the trend towards increasing inequality. Middle-income families in Montana saw their incomes increase about as fast as upper income families. We were one of only six states that did not see the top fifth of families gain income faster than the middle fifth. Over the last 20 years, Montana was in the lowest 6 states in terms of the increase in the income gap between middle-income and well-to-do families. At the end of that 20-year period, we were one of the states with the smallest gaps between our middle-class and upper-class families.
All this is relatively positive news for Montana. Our economy appears to have not become as “yuppified” during the last two decades as the rest of the nation. The data from the late 1990s, however, suggests that, unfortunately, we may have been catching up. Because Montana has such a small population, the sample of households surveyed each year to gather this data is relatively limited and by the time it gets divided into five income classes to study inequality, the data can get so sparse as to be unreliable. For that reason we may have to wait a few more years before we can accurately characterize the changes in the late 90s. Meanwhile, the longer term trends certainly do not suggest that the Montana economy has gone terribly astray either in terms of the incomes available to support our families or the changes in the degree of inequality among our families.
[1] Pulling Apart: A State-by-State Analysis of Income Trends, Jared Bernstein et al., April 2002, Center on Budget and Policy Priorities and Economic Policy Center, Washington, DC.
[2] These results are based on the 2000 version of Pulling Apart because the cost of living data is for 1995 and the 2000 version used 1996-1998 data. The cost of living data came from “Trends in the Real Incomes and Earnings of Massachusetts Residents and the Comparative Per Capita Income Position of the State,” prepared by the Center for Labor Market Studies, Northeastern University, Boston, for MassINC, March 1998, Table 22, pp. 69-70.