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Economy grows but working people don’t benefit

Growing economic inequality means only the rich are getting richer
By Masao Suzuki |
September 22, 2014
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San José, CA - On Tuesday, Sept. 16, the Census Bureau released their annual report on income and poverty for 2013. The report showed that the typical household had a small gain in their income for the first time since 2007. The median household income, at $51,939 was still below that of 1996, when adjusted for inflation. It is still down 8% from 2007 and 8.7% less than its peak in 1999.

A typical household in the lowest one-fifth of the population, making less $22,778 last year, has lost 5.9% of their purchasing power since 1990. On the other hand, the a typical household in the highest one-fifth of the population, making more than $110,000 in 2013, saw a gain of 23% in purchasing power since 1990. And the top 5% of the population saw their typical income gain by 34.5% since 1990.

The Gini index, a standard measure of economic inequality, stayed at a high at 0.476, where zero is perfect equality and one is perfect inequality. This measure has gone up from a low of 0.351 in 1968, for a rise of more than one-third. Actual inequality is probably greater, as the Census Bureau does not count capital gains, which mainly goes to the highest income households, and about half goes to the top 1% who own the majority of corporate stock and privately-held businesses.

The earnings of men working year-round and full-time is still below that of 1973, when adjusted for inflation. While women working full-time and year-round have seen their earnings rise since then, their incomes are still below their 2007 high before the recession started.

The median income for an African American household was only $34,775 last year, or less than 60% of a typical white household. This is about 4% lower than the Black/White income ratio in 2007, showing that African Americans have been hit harder by the recession than whites.

While the official poverty rate did fall slightly in 2013, at 14.5% it is still much higher than the 12.5% count before the recession started in 2007. Over the last three years the poverty rate has been the highest since 1993 when it spiked after the 1991 recession. Before then, poverty has not been as high as it was last year since 1965, almost 50 years ago.

The official poverty rate for African Americans in 2013, at 27.1%, was almost three times as high as the poverty rate for whites, which was only 9.6%. Children continued to have the highest official rate of poverty, which at 19.9% is more than twice as high as the poverty rate for seniors, which was only 9.5%. But this low poverty rate for the elderly is because of Social Security - without Social Security benefits the poverty rate for the elderly would be over 40%, or four times as high! Social Security is even more important for elderly women, whose poverty rate would jump to almost 50% without Social Security benefits.

Because the official poverty measure was developed almost 50 years ago based on data from the 1950s, it undercounts the number of poor. The official poverty line for a family of three (one adult and two children) was only $18,769, or about $1500 per month, not nearly enough to survive on. A relative poverty measurement of households with less than half of the median income would increase the incidence of poverty from by about 50%, to almost 23% of the population.