Special Report

States With the Widest Gap Between Rich and Poor

Income inequality has grown so severe in recent years that Federal Reserve Board Chair Janet Yellen described it as a source of great concern. In a speech earlier this month Yellen said, “The distribution of income and wealth in the United States has been widening more or less steadily for several decades, to a greater extent than in most advanced countries.”

In some parts of the U.S., the problem of income inequality is especially pronounced. Based on the Gini coefficient, which measures the degree to which incomes deviate from perfect equality, 24/7 Wall St. reviewed the states with the widest gap between the rich and the poor. Last year, New York was the most unequal state in the nation.

Click here to see the states with the worst income inequality

In an interview with 24/7 Wall St., David Cooper, economic analyst at the Economic Policy Institute, said that “the root of income inequality really is the stagnation in pay and wages for the vast majority of Americans.” Cooper explained that while most people generate their incomes from wages, the wealthiest Americans generate income from returns on capital. When wages stagnate and more income is generated through investments, the income gap is exacerbated.

Cooper added that while some individuals with extremely high incomes took a major hit during the Great Recession, the very rich have “made up all that lost income since then, and incomes for the top are higher than they were prior to the recession at this point.”

The growing incomes of extremely wealthy individuals explain, in part, why a majority of states with the widest income gaps appear quite wealthy as a whole. According to Cooper, “they skew the distribution so much that you do tend to see the highest inequality in places that have the most wealthy individuals.” In fact, each of the 10 most unequal states also had among the highest shares of income going to the top-earning 5% of households last year. In New York and Connecticut, more than 25% of all income was reported by these households.

The types of occupations of state residents also plays a role. Cooper explained that while there are highly paid executives in all states, they are more concentrated in places like New York. He added, “Doctors, attorneys, [and] people who work in finance are obviously going to be making more money than folks working in traditionally lower-paying industries like manufacturing or the service industry.”

As an example, six of the states with the worst income inequality had among the 10 highest share of employees in finance-related fields, while five had among the 10 highest share of the work force in professional, scientific, and management occupations.

Since wages are the primary source of income for most Americans, the unemployment rate in a given area is also an important factor. Six of the 10 states had unemployment rates higher than the national rate last year. Cooper added, however, that employment plays less of a role in differentiating one state from another because residents can move easily between states.

To identify the states with the worst income inequality, 24/7 Wall St. reviewed Gini coefficient figures from the U.S. Census Bureau’s 2013 American Community Survey (ACS). The Gini coefficient reflects the degree to which an area’s incomes deviate from a perfectly equal income distribution. The coefficient is scaled from 0 to 1, where a 0 represents perfectly equal incomes among all people. We also utilized ACS data on poverty rates, income distribution among households, the percentage of households receiving SNAP benefits/food stamps, and the distribution of employment by industry. Figures for average annual unemployment and the percentage of hourly workers earning the minimum wage or less are from the Bureau of Labor Statistics for 2013.

These are the states with the widest gap between rich and poor

10. New Jersey
> Gini coefficient: 0.4800
> Median household income: $70,165 (3rd highest)
> Households earning $200,000+: 9.7% (the highest)
> Population living below poverty line: 11.4% (8th lowest)

The gap in incomes between the wealthiest and poorest residents was wider in New Jersey than in all but nine other states last year. Even with wide disparities in incomes, New Jersey is among the wealthiest states in the nation. A typical household made $70,165 in 2013, more than all but two other states. And only 5.7% of households earned less than $10,000, one of the lower percentages in the nation. Meanwhile, 9.7% of households earned $200,000 or more last year, the highest rate in the nation. Only 11.4% of New Jersey residents lived below the poverty line, versus nearly 16% of all Americans.

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9. Texas
> Gini coefficient: 0.4807
> Median household income: $51,704 (23rd highest)
> Households earning $200,000+: 5.1% (14th highest)
> Population living below poverty line: 17.5% (13th highest)

While a number of the states with the widest income gaps are, as a whole, quite wealthy, the median household income in Texas was $51,704 last year, slightly less than the national figure of $52,250. The state also had one of the higher poverty rates in the nation, with 17.5% of residents living below the poverty level last year. Nearly 6.5% of Texas’ hourly workers were paid at or below the minimum wage, one of the highest rates in the nation. Workers may be paid hourly wages less than the minimum wage if they work in jobs where tips are customary.

8. Illinois
> Gini coefficient: 0.4824
> Median household income: $56,210 (17th highest)
> Households earning $200,000+: 5.6% (10th highest)
> Population living below poverty line: 14.7% (25th lowest)

Roughly 5.6% of households in Illinois reported incomes of $200,000 or more last year, higher than in most other states. However, the top 5% of households accounted for 23.3% of all income in Illinois, a higher share than in all but five other states. Unemployment may have also contributed to inequality in the state. Although unemployment has been on the decline in recent months, last year 9.2% of Illinois workers were unemployed, the third highest rate in the nation. Further, 14.7% of people in the state lived below the poverty line in 2013 — lower, but not by much, than the U.S. overall.


7. Massachusetts
> Gini coefficient: 0.4837 (tied-6th highest)
> Median household income: $66,768 (6th highest)
> Households earning $200,000+: 8.3% (4th highest)
> Population living below poverty line: 11.9% (11th lowest)

Massachusetts is home to some of the nation’s wealthiest people. More than 8% of state residents earned more than $200,000 last year, a higher percentage than in all but three other states. And a typical household earned $66,768, also among the highest figures in the country. Further, less than 12% of people lived in poverty in 2013, versus 15.8% of all Americans. However, despite this, the bottom-earning 40% of households accounted for just 11% of all income in Massachusetts last year, among the lowest such rates in the nation.

6. Georgia
> Gini coefficient: 0.4837 (tied-6th highest)
> Median household income: $47,829 (18th lowest)
> Households earning $200,000+: 3.9% (tied-21st highest)
> Population living below poverty line: 19.0% (5th highest)

Last year, 9.2% of households in Georgia reported less than $10,000 in income, one of the highest rates in the U.S. Further, 19% of individuals lived below the poverty line, the fifth highest rate in the nation. High unemployment rates may further contribute to inequality in the state. Last year, 8.2% of Georgia workers were unemployed, among the worst rates in the country. Recently, unemployment has been a factor in state politics as well, with Governor Nathan Deal expressing skepticism about recent numbers, and challenger Jason Carter mocking him by stating “Governor, it’s time to put the tinfoil hats away.”

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5. Florida
> Gini coefficient: 0.4843
> Median household income: $46,036 (12th lowest)
> Households earning $200,000+: 3.9% (tied-21st highest)
> Population living below poverty line: 17.0% (15th highest)

Last year, the top 5% of households accounted for 24% of all income in Florida, more than in all but two other states. Like in many states, a large number of households in Florida are struggling to get by. As of last year, 15.1% of households in the state relied on food stamps. Back in 2007, that figure was just 5.8%. Further, 8.2% of households in Florida reported less than $10,000 in income in 2013, more than in many states, while 17% of residents lived below the poverty line — above the national rate of 15.8%. While many Floridians are struggling, the ongoing return to normal housing market conditions could help alleviate some of their problems.


4. California
> Gini coefficient: 0.4903
> Median household income: $60,190 (10th highest)
> Households earning $200,000+: 7.7% (6th highest)
> Population living below poverty line: 16.8% (16th highest)

California had one of the highest median household incomes in the nation, at over $60,000 last year. Further, 7.7% of all households had incomes of more than $200,000, higher than in all but five other states. However, a large subset of California residents are quite poor. California’s poverty rate in 2013 was 16.8%, above the U.S. rate of 15.8%. Additionally, using the Census Bureau’s supplemental poverty measure — which takes spending on basic needs and non-cash government benefits into account — California had the nation’s highest poverty rate from 2011 through 2013.

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3. Louisiana
> Gini coefficient: 0.4914
> Median household income: $44,164 (8th lowest)
> Households earning $200,000+: 3.6% (25th highest)
> Population living below poverty line: 19.8% (3rd highest)

Last year 10.7% of households in Louisiana had incomes of less than $10,000, the second highest percentage in the nation, behind only Mississippi. Further, close to 20% of the population lived below the poverty line, the third worst rate in America. Overall, Louisiana households are among the poorest in the nation, with a median income of just over $44,000 in 2013. A greater share of income goes to the top 20% of all households in Louisiana than in all but a few other states.

2. Connecticut
> Gini coefficient: 0.4994
> Median household income: $67,098 (5th highest)
> Households earning $200,000+: 9.3% (2nd highest)
> Population living below poverty line: 10.7% (4th lowest)

Connecticut is generally quite wealthy, with a median household income of more than $67,000 last year, well above the U.S. median of $52,250. Further, 9.3% of households reported incomes of $200,000 or more, behind only New Jersey. However, the top 5% of households in Connecticut accounted for more than 25.4% of all income in the state last year, the highest rate in the U.S. And while the state’s poverty rate is among the nation’s lowest, at 10.7%, it has risen by five percentage points since 2007. According to the Associated Press, income inequality has made tax revenue in the state volatile, as capital gains and realized profits from stock sales by ultra high net worth individuals fluctuate from year to year.

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1. New York
> Gini coefficient: 0.5098
> Median household income: $57,369 (16th highest)
> Households earning $200,000+: 7.3% (7th highest)
> Population living below poverty line: 16.0% (20th highest)

New York ranked as the worst state for income inequality in 2013. New York alone had the distinction of having a Gini coefficient greater than 0.5. The bottom 20% of households accounted for just 2.7% of all income in 2013, the least in the nation. Conversely, the top 20% of households accounted for 53.9% of all income, the most in the nation. Further, New York was one of only two states, along with Connecticut, where more than 25% of all income was earned by just the top 5% of households. In a recent speech in the United Kingdom, New York City mayor Bill de Blasio said of inequality: “If it isn’t addressed, this crisis becomes the defining characteristic of our society.”

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