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Income Gap Separating Wealthy From Middle And Lower Class Virtually Unchanged In The State

MARK SPENCER

October 06, 2009

Defying predictions that the recession would help level the economic playing field, the huge income gap separating the state's wealthiest residents and the middle and lower classes surprised experts by remaining virtually unchanged from 2007 to 2008, according to figures from the U.S. Census Bureau.

Nationally, the disparity also held steady, for the most part, despite the hit the wealthy took when financial markets collapsed during the recession.

"While the rich are doing relatively less well, the poor and the middle class are suffering more," said Bruce Judson, a senior faculty fellow at the Yale School of Management.

Judson said the latest figures underscore the tenacity of the income gap. The upper end of the income scale could be even higher, he said, since the census tends to under-report the income of the wealthy for several reasons, including not counting capital gains as income.

Judson said that the disparity — the gap in Connecticut is the second-largest in the country — means that the poor face an ever-steeper climb to improve their standing while the middle class struggles to maintain its standard of living.

"If the middle class disappears and we become a nation of have and have nots, history tells us we are likely to become politically unstable," said Judson, whose book on the topic, "It Could Happen Here: America on the Brink," is being released today by HarperCollins.

Karl Paulette said he knows first-hand how the recession has caused families to slip backward. He said he was laid off in July from his job as an engineer in Watertown's public works department when budget cuts forced layoffs. A member of CSEA/SEIU Local 2001, he considered his family solidly middle class and upwardly mobile. Now, he said, things have changed.

"It's quickly going the other way," said Paulette, who still doesn't have a job.

Those at the bottom end of the income ladder have steadily lost ground since 1990, the census figures show. As the economy improves, some analysts are concerned that middle- and low-income people will be left behind.

"The rising tide will not be lifting all boats," said Donald Klepper-Smith, chief economist for DataCore Partners LLC in New Haven and chairman of the governor's council of economic advisers.

In Connecticut, the inflation-adjusted annual income of the rich increased from an average of $184,239 at the beginning of the 1990s to $267,446 from 2006 to 2008, according to an analysis by Joachim Hero, a research associate with the policy and advocacy group Connecticut Voices for Children. His analysis included figures released by the U.S. Census Bureau in the past few weeks.

During the same period, the average income of the poor fell from $19,854 to $15,939, while middle class incomes remained virtually flat.

The full impact of the recession on the income gap remains unclear because it was still gaining momentum throughout 2008 and worsened in the first quarter of 2009.

According to census figures released last week, more people fell into the lowest income group — those earning less than $10,000 a year — from 2007 to 2008, said Orlando Rodriguez, manager of the Connecticut State Data Center, part of the Center for Population Research at the University of Connecticut.

The number of state residents living in poverty increased from 7.9 percent in 2007 to 9.3 percent in 2008, according to the census figures.

At the other end of the scale, the number of people earning $125,000 to $199,999 increased, Rodriguez said, although it is unclear why it went up considering the collapse of the financial system in 2008.

One economist suggested that it may be because people in the highest income group — those making more than $200,000 — moved into a lower category.

But most income categories nationally and in Connecticut did not change significantly, according to the census bureau's American Community Survey, which is based on interviews with about 3 million households.

Experience indicates the poor and middle class will regain their pre-recession standing slowly, if at all.

Since the recession of 2002-03, the bottom 30 percent of wage earners have still not regained the hourly rate they received before that recession, while those at the top have surpassed their former hourly rate, although only in 2008.

For those at the bottom end of the income scale, sliding further into poverty means less access to health care, decent jobs and educational opportunities that could change things for them.

"There's a lot of human capital that goes to waste among the poor," said James Stodder, a clinical associate professor at Rensselaer Polytechnic Institute in Troy, N.Y.

Judson said the only time the income gap has been close to its current level was in the late 1920s, just before the Great Depression. The middle class eventually emerged as the embodiment of the American Dream of decent jobs, home ownership and upward mobility through education, but now finds itself embattled.

"America is not working for them," he said.

Klepper-Smith said the state lost 79,100 jobs from March 2008 to August of this year and expects additional losses. Many of those jobs in construction, manufacturing and business and financial services will not return, he said.

"The sad part is some families aren't going to be able to distinguish between recession and recovery," Klepper-Smith said.