Income inequality has become an increasingly important issue for many Americans. It is no secret that both wealth and income in the United States are much more lopsided toward the highest earners than in other major developed economies. While methods of measuring income inequality vary, it is clear that the highest earners in the United States hold a disproportionate amount of the nation’s wealth and income.
The implications of income inequality – and potential political responses to it – represent their own enormous issue that are beyond the scope this article, but the underlying statistics and trends about income inequality can still offer insight into why and how it occurs. Important economic context for Idaho can also be gained by comparing Idaho’s inequality to other states.
One indicator of income inequality is the share of total income held by the top 10 percent of earners. The following graph shows this share in both Idaho and the United States as a whole from 2000 – 2012.
Idaho’s top earners had a share roughly equivalent to the top earners nationally in 2006. The last recession seems to have had little impact on the national distribution of income, yet it sharply reduced the share of income going to Idaho’s top earners.
While the top earner share has increased in Idaho in recent years, this measure still shows Idaho’s income inequality as of 2012 was roughly equivalent to what it was in the larger economy in 2004.
This may come as a surprise to some people, given how far behind Idaho’s incomes and wages have lagged behind national averages. Year after year, Idaho’s per-capita income consistently ranks among the lowest of any state. Another measure of income, median income – the income of the 50th percentile of earners – shows Idaho ranked 33rd in the nation in 2014.
While it might be tempting to assume a lower median income would foreshadow more income inequality – as the bottom 50 percent of earners lie below the median number – this does not appear to be the case. In the following graph, all 50 states and the national average are plotted according to their median income and the share of their income held by the top 10 percent of earners.
Contrary to expectations, there’s no relationship between low income and income inequality. The states are splattered across the graph. Some are low income and low inequality (Mississippi), some are low income and high inequality (Florida). Meanwhile, Alaska and Connecticut have very similar median incomes, but they are on completely opposite ends of the inequality spectrum, with Alaska ranking as the most equal and Connecticut as the most unequal.
A similar story appears when the states are ranked according to these two measures. Idaho ranks well below the national average – 33rd in median income, but it has the 12th most equally distributed income.
The reason for this has much more to do with the wages of Idaho’s highest earners and not with the median wage. Idaho’s 90th percentile hourly wage is about $27.99, significantly lower than the national 90th percentile hourly wage, which is around $40.
So while expecting lower wages in Idaho to drive higher income inequality, the data shows that the opposite is true. The highest earning percentiles in Idaho are also earning less than they do across the nation. Even though the lowest earners in Idaho are making less than in other states, Idaho doesn’t have a class of high earners comparable to the rest of the country. Idaho may have comparatively low incomes, but it seems that this holds true across all the earning groups. An old adage says that a rising tide lifts all boats. Hopefully continued economic growth will raise incomes for all Idahoans.
Sam.Wolkenhauer@labor.idaho.gov, regional economist
(208) 457-8789 ext 4451