Moscow-Pullman Daily News February 4-5, 2006
By Judith L. Brown
There has been a spate of dismal news about Idaho’s economy lately. Wages per capita have dropped over the past few years from 42nd in the nation to 46th, according to rankings from the Idaho Department of Commerce and Labor. The Corporation for Enterprise Development gave Idaho an F again in the “job quality” category. Employment in low-wage service jobs continues to grow, both in absolute numbers and as a share of the economy.
These reports and statistics deal directly with wages rather than incomes — but wages, of course, are directly related to incomes. Another recent report analyzes income trends in the individual states and in the nation as a whole. The report, “Pulling Apart” by the Center on Budget and Policy Priorities and the Economic Policy Institute, contains troubling news about income inequality and particularly about Idaho’s shrinking middle class.
Between the early 1980s and the early years of the 2000s, the average income of the richest fifth of families in Idaho increased 52 percent, after adjusting for inflation. The average income of the middle fifth of families increased 25 percent. The average income of the poorest fifth of families increased 32 percent.
Incomes of the richest families increased most. We have come to expect that over the past 20 years.
Incomes of the lowest-income families increased to a lesser extent, but did still increase by about one-third. One of the biggest factors holding down wage growth here is the erosion of the minimum wage, which has not been increased since 1997. On the other hand, unemployment has been relatively low in Idaho and the state has a high proportion of workers working more than one job.
Middle-class incomes increased least. What’s up with that? The biggest contributor to rising income inequality over the last two decades has been erosion of wages earned by workers with less than a college education. A very low proportion of Idahoans have a college education, and Idaho’s middle class is struggling to keep up.
I suspect we have been watching the gap between the rich and the poor — and now between the rich and the middle class — grow wider for such a long time that people think this the natural order of things, that it has always been this way and always will be. Not so.
From the end of World War II through the 1970s, we actually “grew together” rather than “pulled apart” as a nation. From 1947 to 1979, the average income of the richest fifth of families in this country increased 99 percent, after adjusting for inflation. The average income of the middle fifth of families increased 111 percent. The average income of the poorest fifth of families increased 116 percent. (These figures come from analysis of Census Bureau data by the Economic Policy Institute.)
That is, incomes grew dramatically across all income groups, with the incomes of low- and middle-income families growing somewhat faster than the incomes of high-income families.
What changed between the post World War II era and the 1980s? For one, there was a major shift between the two periods in tax policy, a reflection of how we as a society spend our common resources. From the end of World War II through the 1950s, ’60s and ’70s we used our tax dollars to invest in helping millions gain entry to the middle class, and then stay there. How was this accomplished?
For one, by making major, ongoing investments in higher education. The GI Bill, Pell grants, low-cost student loans, and affirmative action initiatives for students of color and women all helped to make higher education more affordable and accessible to more Americans. The nation also invested in making home ownership affordable to more, by subsidizing mortgages through VHA, FHA and other programs.
Then, after 1980, we made a dramatic about-face. We switched from using tax policy to strengthen the middle class, to using tax policy to empower those who have already accumulated great wealth to further increase their wealth. We enacted one tax cut for the rich after another. We also curtailed and shrank investments in higher education and in home ownership.
Going forward, what is our choice going to be? More and more tax cuts for the rich? Or shall we again invest in strengthening the middle class?
* Judith L. Brown is an economist and the director of the Idaho Center on Budget and Tax Policy. She lives in Moscow with her family and can be reached at jlbrown@turbonet.com.