June 6, 2012 at 7:40 AM ET
While some income inequality is generally considered necessary in a free market economy, extreme inequality is not. In the United States, there are far more poor people than wealthy ones -- and the gap between the rich and poor is growing. Income inequality is a problem among more developed countries, but the U.S. is among the worst.
The U.S. has the fourth worst income inequality compared to other developed countries, according to the Organisation for Economic Co-operation. Though some are better than others, all 50 states have higher inequality than most of the developed world. 24/7 Wall St. examined the 10 states with widest gap between the rich and poor.
Scored between one and zero, the Gini coefficient is a measure used by economists to rank income inequality. Zero reflects perfect income equality, where everyone makes the same. A score of one reflects an economy where one person has all of the money and everyone else has none. Higher numbers represent significant concentrations of wealth, extreme poverty, and a limited middle class.
The Census began tracking inequality in the U.S. in 1967. The Gini coefficient was 0.397 then. The most recent number puts it at 0.469. Though states range from 0.419 in Utah to 0.499 in New York, America’s income divide has widened.
While the states we examined have high inequality, they’re not necessarily wealthy states. Alabama, Mississippi and Tennessee, have among the lowest median incomes in the country and also have the worst income inequality scores. States with the highest incomes, including Connecticut, Massachusetts and California, are also on the list. All ten states have -- relative to the size of their middle class -- a large percentage of their population living at one end of the income spectrum, and in some cases large percentages at both ends.
In four of the states on this list, more than 7 percent of households earn at least $200,000 each year, much larger than the national proportion of roughly 4 percent. On the other side of the spectrum, five of these states have among the top 10 largest percentages of households earning less than $10,000 each year. Only two of these states, New York and California, have very large proportions of both extremely wealthy households and extremely poor households.
Having a large population appears to be a factor contributing to inequality as well. Of the states on this list, eight are among the 25 most populous states in the country. The four most populous states -- New York, California, Texas and Florida -- have among the worst income inequality. It appears that a large, populous state is more likely to have extremely poor rural areas and large citieswith wealthy suburbs.
While having high or low median income does not appear to correlate to high income inequality, education does. Looking at the percentage of the population 25 years and older with a high school diploma, eight of the 10 are in the bottom third. This includes California, Texas and Mississippi, which have the three least educated populations in the United States.
In addition to state Gini coefficient scores, which were provided by the Census Bureau, 24/7 Wall St. reviewed the distribution of household income in these states, as well as the median income. We also considered the percentage of residents 25 years and older with at least a high school diploma and the percentage with at least a college degree; the percentage of households below the poverty line; and the percentage of households receiving food stamps.
These are the states with the widest gap between rich and poor.
1. New York
New York is the state with the highest income inequality, though its Gini coefficient has decreased from its 2009 level of 0.502 to 0.499. Median income has increased significantly from $50,216 in 2009 to $54,148 in 2010. Also, the number of households earning $200,000 or more increased from 6.15 percent in 2009 to 7.4 percent in 2010. The population living below the poverty line has decreased slightly. Despite dropping from a Gini coefficient above 0.5, New York still has a long way to go.
Connecticut has the second-worst income inequality in the U.S., with a 0.006 jump in inequality since 2009. Median income has increased from $63,851 in 2009. Slightly more households have fallen below the poverty line since 2009, but Connecticut maintains its position as one of the states with the smallest number of residents living in poverty. As much as 36 percent of Connecticut residents over 25-years old hold a bachelor’s degree, which is the fourth-highest rate in the country and helps explain why Connecticut enjoys some of the highest rankings of high-income households in the country.
Though Louisiana’s 2010 unemployment rate of 7.5 percent was lower than the national average and the lowest on this list, Louisianans face other constraints limiting upward mobility for the majority of households. A sizable portion of the population has not completed their high school education -- only 82.5 percent of residents older than 25 had a high school diploma, while only 21.8 percent had a college degree. Additionally, though much of the population may be employed, 15.3 percent of residents received food stamps, and the state’s median income is lower than all but nine states.
Massachusetts has the fourth-worst income inequality in the U.S. -- worse than its 10th place in 2009. Median income has increased considerably from $59,373 in 2009, while the proportion of households earning more than $200,000 remained in fourth place. More households have slipped below the poverty line as the poverty rate has increased from 10.3 percent in 2009. Massachusetts’ top ranking in the country with the highest percentage of individuals over 25 holding a bachelor degree may exacerbate the income disparity.
With an unemployment rate of 11.3 percent in 2010, Florida has had trouble creating the jobs necessary to eliminate its sizable income gap. Though 8.1 percent of Florida households earn at least $150,000 a year, 12.4 percent of the state population remain on food stamps. Many Floridians live in extreme poverty, as Florida has the third-largest number of households -- in excess of a quarter million -- earning less than $10,000 a year. Yet the opposite strata of the income distribution is also well occupied. Florida has the fifth-most households earning more than $200,000 annually.