Tuesday, June 12, 2012

Income Disparity Continues to Grow in Colorado

Income inequality continues to grow in Colorado, mirroring the widening gulf nationwide between the rich and everyone else. Data from our recent report, the State of Working Colorado 2012, show that while lower- and middle-class wages decline and stagnate, top earners continue to enjoy increased earnings.

From 2000-11, workers in the top 10 percent of the income distribution saw wages rise 8 percent, while workers in the bottom 10 percent saw wages decrease by 8 percent. And those figures don’t even include accrued financial wealth, a major source of income for the wealthiest Coloradans.

Tax policy is one way to reduce this growing disparity. Colorado’s current tax structure is regressive, meaning residents with lower incomes pay a higher share of their incomes in taxes. To make taxes more progressive, Colorado could return to a graduated income tax system. Such a system is fairer, addresses exploding income inequality, and could raise additional revenue for key state services in a time of great need.

The tax code also can target support for families in need through progressive credits like the earned income tax credit and the child tax credit, which boost the incomes of the lowest earners. Conversely, cleaning up the tax code to reduce or eliminate unfair or inefficient tax breaks would allow more revenue to go to services Coloradans need most.

Below is a compilation of data from the State of Working Colorado 2012 that show the growing income gap in our state.

If all households were lined up by income level, the median household income of the group would be the amount earned by the household in the middle of the pack. The median value is often more representative of the majority than an average value, which can be skewed by extreme outliers (upward, in the case of income). Like many other measures of economic potential in the state, Colorado median household income is higher than such income for the rest of the country. Colorado has maintained its income advantage since the 1990s. In 2010, the median household income in Colorado was $54,046, versus $50,046 for the nation. (Figure 1) That ranks 15th highest among states.

Despite Colorado’s relative wealth, income during the past decade has decreased significantly. The decrease in real median household income in Colorado was statistically significant from 2000-10 as well as pre- and post-recession. (Figure 1)

Even though income has declined and wages remained stagnant over the decade, worker productivity has increased. (Figures 2-4) That means the payoff of increased worker productivity is not going to the workers themselves.

Income distribution
The distribution of income in Colorado remains uneven, showing the gains of increased worker productivity increasingly benefit those at the top. Income percentiles demonstrate the gap by communicating relative rankings. For example, a household in the 10th percentile earned more than the bottom 10 percent of the workforce; similarly a household in the 90th earned more than 90 percent of the population.

Like the nation as a whole, income inequality continues to grow in Colorado. The inequality is greatest at the top income levels; in other words, the gap between the middle (median) and the top is much greater than the gap between the middle and the bottom. (Figures 3-6)

While Coloradans in the 90th percentile of wages enjoyed more than seven times the earnings gains of median earners, wages for the bottom 10 percent decreased. (Figures 3-4)

From 2009 to 2010 annual household income decreased for everyone but the top earners, whose income increased. (Figure 5)

While the bottom 20 percent of earners held only 3.4 percent of all income in Colorado, the top 20 percent of earners had almost 50 percent.[1] (Figure 6) The growing economic inequality in Colorado and the nation as a whole is a troubling trend. Increasingly, the American economy is serving the wealthy at the expense of the poor, and if left unattended by policymakers, will have serious economic repercussions for everyone.

[1] Income includes earnings through wages and salaries, transfer income, like unemployment insurance payments or child support payments and dividend, interest and rental income. One way to show the distribution of aggregate income is to line up all households and divide them into quintiles where each quintile represents 20 percent of all households.

Median wage by education
Education plays a large role in economic livelihood. In 2011, Coloradans with a bachelor’s degree or higher earned more than twice as much as those without a high school diploma. In the same year, graduating high school meant almost a 40 percent increase in wages, while obtaining a college degree meant an additional 55 percent to 80 percent increase in wages for those with only a high school diploma or some college.[2] (Figure 7) The numbers stress the necessity of an accessible and affordable education for all Coloradans.

[2] It is important to note that the relationships here are not purely causal. That is, it is unfair to say that completing college will cause a 50-some percent increase in wages. While that may or may not be the case, strictly speaking the data show only that workers with a bachelor’s degree or higher earned 50 to 60 percent more than those who only completed high school.

County income distribution
Household income varies drastically among Colorado counties. The highest-income county in Colorado is Douglas County, with a median household income of $99,198. The lowest-income county in Colorado is Costilla County, with a median household income of $24,388. (Figure 8) The difference between the two counties is almost $75,000, demonstrating just how concentrated wealth can be.


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