WV Center on Budget and Policy > Blog > Economic Development > Income Inequality Growing in Mountain State

Income Inequality Growing in Mountain State

A recent article from Governing Magazine shows that West Virginia had the largest increase in income inequality from 2010 to 2011. While West Virginia has traditionally had lower levels of income inequality compared to most states, income inequality in the Mountain State is now nearly the same as the national average. 

The graph below uses the GINI Index from the American Community Survey to measure the income inequality of households in West Virginia and the United States. The index varies between zero and one. A value of 1 indicates perfect inequality – where only one household has any income – and a zero value indicates perfect equality  –  where all households have equal income. 

Last year, West Virginia had the 12th highest income inequality in the country.  The state with the highest income inequality in 2011 was New York (0.5338). Wyoming, another state heavily reliant on extractive industry, had the lowest rate of income inequality (0.4081). 

As the chart above shows, West Virginia and the country have grown more unequal over the last six years. In 2006, 25 states had higher income inequality than West Virginia compared. In fact, between 2006 and 2011 the Mountain State had the second largest increase in its GINI Index score in the country. Only Rhode Island witnessed larger growth in income inequality.  

Nationally, income inequality has been growing rapidly over the last several decades. For example, the share of total pre-tax income going to the top 1 percent of households was about 9 percent in 1975 compared to 20 percent in 2010. While there are many factors at play – including race and gender disparities, distribution of assets, the rapid rise of CEO pay, education and technology –  the biggest factor is policy that has been  designed to distribute money upward over the past several decades.  Below are a couple of examples.

–  Minimum Wage. According to economist Dean Baker, if the minimum wage had kept pace with productivity growth since the late 1960s, it would be close to $18 an hour today. Unfortunately, West Virginia – unlike 18 other states – does not have a minimum wage above the federal minimum wage of $7.25 an hour. This could be remedied at the federal or state level.

–  Taxes. A recent report by the non-partisan Congressional Research Service (CRS) found that not only are lower federal taxes on the wealthy not associated with higher economic growth, but that they are exacerbating income inequality. CRS concluded that “the top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution…(and that)lower top tax rates may be associated with greater income disparities.” Steps to improve this disparity include increasing the share of taxes paid by the wealthy,  such as taxing capital gains at the same rate (35% instead of 15%) as ordinary income. At the state level – where low and middle income West Virginia pay a higher share of state and local taxes as a share of income – we could create a refundable state Earned Income Tax Credit modeled after the federal one that would reduce tax regressivity and promote work.

–  Unionization. As economist Timothy Noah recently pointed out, “if you graph a line charting the decline in union membership and then superimpose another line charting the decline in middle-class income share, the lines will be nearly identical. That is not a coincidence.” One proposal to help revitalize unions in America would be to amend the Civil Right Act to include “disciplining or firing an employee on the basis of seeking union membership” illegal just as it now is on the basis of race, color, sex, religion and national origin.” As Dean Baker has pointed out,   “the fact that unionization rates have plummeted [in the U.S] is almost certainly due in part to policies that have made it more difficult to unionize. Canada, which has a very similar economy and culture, has not experienced a decline in unionization rates of the same magnitude.”

While these are just some examples of how we can curb income inequality in the Mountain State, they would go a long way to giving workers more bargaining power over their declining wages and help ensure that the wealthy pay their fair share in taxes.

5 Responses to “Income Inequality Growing in Mountain State”

  1. Ted,
    Do you have any guesses as to the reasons for the volatility of WV’s index? Why the sizable decline in inequality in 2010 followed by the even greater increase in 2011? Are these accurate reflections of economic changes in the state or statistical anomalies?

  2. Ted Boettner Ted Boettner says:

    The change from 2010 to 2011 was statistically significant, as was the national change. We are co-releasing a larger report with CBPP/EPI in November that will provide more detail. Regarding volatility, the MOE was a little higher in 2011 than 2010 but it wasn’t enough to account for the rapid swing toward more income inequality. Of course, the GINI is not perfect, but it is a pretty good approximation of income inequality. The best chart that looks at income inequality in WV is the one on page 15 of the 2011 SWWV. See here: http://www.wvpolicy.org/wp-content/uploads/2012/06/WVCBP_Working_WV_2010_022511.pdf

    If median household income grew at the same rate as average income growth (like it did in the early 1970s) the median family income would be closer to $90,000 instead of being $60,000.

  3. Actually, I wasn’t asking so much about the statistical quality of the analysis as I was about the underlying economic factors that might account for such swings because, aside from natural gas drilling, nothing else that took place in WV during the period immediately jumps out at me as a possible cause for the volatility. Do you care to speculate?

    • Ted Boettner Ted Boettner says:

      Not really sure. It’s hard to examine in the short-run. Since the recession, we’ve lost a lot of high paying construction/manufacturing jobs and we’ve gained some lower paying health service jobs. Looking at the 2010 and 2011 ACS data it appears that over 91,000 households made over $100k in 2011 compared to just 77,000 households in 2010. Meanwhile, in 2011 there were 644,000 making below $100k compared to 663,000 below $100k in 2010. It appears than income flowed more to the top from 2010 to 2011, as shown in the GINI Index, but not quite sure what is driving it. I’ll have to look at it some more.

  4. Renate Pore Renate Pore says:

    Great information. This can form the basis of the tax/budget part of the Child Poverty Report. Another example of how the data shows we are heading in the wrong direction and action is urgent.

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