Income inequality is sometimes considered to be a problem plaguing wealthy American communities like San Francisco, where the gap between rich and poor has been compared with that of developing nations like Rwanda.
But it turns out that every state in the country is experiencing the impact of the trend, which is lifting the fortunes of the rich while leaving the rest of the country's workers behind. Since the 1970s, inequality has widened in every state, and since the Great Recession, many states have seen even wider gaps between the top 1 percent of income earners and the bottom 99 percent, according to a new study published by the left-leaning think tank Economic Policy Institute.
It found the top 1 percent of Americans captured 85.1 percent of total income growth between 2009 to 2013, which means the bottom 99 percent of workers failed to share in the fruits of the recovery to the same extent. A myriad of potential problems can develop with a winner-takes-all economy, ranging from weaker consumer spending to a lack of social mobility for poor and middle-class children. On top of that, workers can become discouraged if the economy doesn't reward employment fairly.
"I'm deeply concerned that if we see this growth in income inequality, it will translate into undermining what I think is the hallmark of American society," the ability to climb the socio-economic ladder, said Mark Price, a labor economist with Keystone Research Center and a co-author of the report. "Poor children aren't necessarily born with less ability. This could mean that those kids don't get the means to achieve their potential."
In economies where most of the income gains are at the top, productivity growth may end up slowing, he added: "When income was growing for everyone, productivity growth was stronger."
Specific industries may fuel wider income inequality, such financial services, where some top employees can receive multimillion paychecks. Yet the countrywide trends toward greater inequality hints that other ubiquitous issues are touching every community. Economists frequently debate the causes, although Price said he believes one of the significant changes since the 1970s is the decline of union employment.
"The absence of collective bargaining means that even though productivity is growing and the economy is growing, it's not ending up in worker's paychecks like you would expect," Price explained.
Another issue is the erosion of the federal minimum wage, which has hasn't changed from $7.25 an hour since 2009. Even in 2009, the minimum wage was 7.8 percent below its 1967 value, the EPI has found.
Then there are shifts in what society considers to be acceptable in the corporate world. Forty years ago, it may have been unheard of for a CEO to earn a huge salary and bonus while laying off workers, but that doesn't raise eyebrows now. Top executives in the financial sector are more aggressive and expect higher pay packages in return, Price noted.
He added, "Cultural norms have changed. It's made that income growth at the top more palatable."
The EPI study's methodology relies on tax data reported by the IRS for states and counties. The analysis examines income earned through jobs, interest or selling a financial asset, although it excludes the impact of taxes and government benefits.
Read on to learn about the nine U.S. states where income inequality is widest.