Strong Economy in the 1990s
Narrowed the Income Gap

The rising economic tide of the late 1990s drove unemployment to record-low levels. Apparently it also narrowed the gap between the incomes of the most wealth and least wealthy Americans, according to a jointly authored study from the Economic Policy Institute and the Center on Budget and Policy Priorities. In a report released in April titled "Pulling Apart: A State-by-State Analysis of Income Trends," the authors examined Census Bureau data and found that the top 20 percent of American households earned $9.99 for every dollar earned by the bottom 20 percent during 1998-2000. In contrast, an earlier study found the ratio was $10.58 for the top group for every dollar earned by the bottom group during 1996-1998.

The report noted that "exceptionally low unemployment rates brought gains to low-wage workers and fairly broad-based wage growth during the end of the 1990s." Much of the increase in relative position of low-income households occurred in the most populous states. Thirty-five states experienced a narrowing of the gap between the incomes of the highest and lowest earning households.

The authors were quick to point out that the improvement during the late 1990s was not enough to reverse a longer-term widening of the income gap. The gap between highest and lowest earning households has increased in 45 states over the past 20 years. In five states (Arizona, California, New York, Ohio and Wyoming) the inflation-adjusted household incomes of the poorest 20 percent were lower in the late 1990s than in the 1970s. Also, since much of the improved financial situation of low income households has been attributed a tight labor market, the recent rise in unemployment to 6.0 percent does not bode well for low income households trying to hang on to these gains.