Report

Income Inequality Grew Dramatically in DC Over The Past Two Decades

by Ed Lazere
PDF of this Report

The gap between the highest-income families and poor families in the District of Columbia grew significantly between the early 1980s and the early 2000s, according to a new study by two national research organizations.  The incomes of DC’s richest families climbed substantially over the past two decades, while incomes remain virtually unchanged for the lowest- income families.  The District’s middle-income families experienced some income growth, but far less than among the wealthiest families.

The study, Pulling Apart: A State-by-State Analysis of Income Trends, was prepared by the Washington, DC-based Center on Budget and Policy Priorities and the Economic Policy Institute.[1]  The study is based on Census Bureau data that have been adjusted to account for inflation, the impact of federal taxes, and the cash value of food stamps, subsidized school lunches, and housing vouchers.  Income from capital gains is also included.  The study compares combined data from 2001-2003 with data from the early 1980s and early 1990s, time periods chosen because they stand as comparable low points of their respective business cycles. Its findings include:

TABLE 1

Changes in Incomes of DC Families
1980s to 1990s by Income Group

 

Early 1980

Early 2000

Bottom Fifth

$12,300

$12,700

Middle Fifth

$32,100

$41,900

Richest Fifth

$87,300

$157,700

* All figures are adjusted for inflation to equal 2002 dollars.

Source:  Center on Budget and Policy Priorities and Economic Policy Institute

  • Income among DC’s poorest families remained virtually unchanged between the early 1980s and the early 2000s.  During that time, the average income of the bottom fifth of DC families rose just three percent, from $12,300 to $12,700.  (Both figures are adjusted for inflation to equal 2002 dollars.)[2]

  • The average income of the middle fifth of families increased from $32,100 to $41,900, an increase of 31 percent.

  • The average income of the richest fifth of families increased by more than $70,000 between the early 1980s and the early 2000s, from $87,300 to $157,700.  This is an increase of 81 percent over the past two decades.

As a result, the income gaps between DC’s high-income and low-income families widened significantly, as did the gap between wealthy and middle-income families.  In the early 2000s, the richest 20 percent of District families had incomes 12.4 times as large as the average income of the poorest 20 percent.  This is up from a ratio of 7.1 in the early 1980s.

The findings of the new report ‘ which also shows widening income gaps in most states ‘ suggest that low-income District families have not been able to benefit from the area’s economic opportunities and that continued economic growth alone will not reduce income inequality.

As noted in previous DCFPI analyses, the wide gap between high-income and low-income households in the District reflects a variety of factors.  Income inequality results in part from substantial wage inequality ‘ which has widened over the past two decades as wages at the bottom of the earnings scale have grown far more slowly than wages at the top.  Falling wages contribute significantly to stagnating incomes for DC’s low-income families because, contrary to popular perception, most low-income families in the District (as in the nation as a whole) are working families and rely on wages for their primary source of income.

DC’s income inequality also reflects a sizable decline in the value of public assistance benefits, particularly TANF benefits for families with children.  Since 1990, for example, DC’s TANF benefits have fallen 36 percent, after adjusting for inflation, a greater decline than in all 48 states.  The maximum TANF benefit for a family of three ‘ $379 a month ‘ equals just 28 percent of the poverty line.

The District has taken a number of steps in recent years to boost the incomes or reduce basic living expenses of its lowest-income residents.  This includes establishing and then expanding the DC Earned Income Tax Credit, which provides tax relief to low-income workers.  The DC EITC is now equal to 35 percent of the federal credit, making it the largest state-level EITC in the nation.  Other notable changes include an increase in the minimum wage to $7.00 an hour and an increase in child care assistance for working families.  It appears that the DC Council will soon adopt a “living wage” law requiring businesses that operate under DC contracts or that receive economic development assistance pay their affiliated employees at least $11.75 an hour.

Nevertheless, the finding that income inequality has widened in the District ‘  and that incomes for its poorest families have barely grown over the past two decades ‘ suggests that further measures are needed.  Some policies that could reduce income inequality are:

  • Further increase in the minimum wage:  DC’s minimum wage remained at $6.15 an hour between 1997 and 2004, when it was raised to $7.00 per hour over a two-year period.  While the recent increase is helpful to low-wage workers, it does not compensate fully for the loss of purchasing power since 1997.  The DC minimum wage would be $7.55 per hour this year if it had been adjusted for inflation every year since 1997.

  • Increasing TANF benefits for families with children:  If DC’s TANF benefits had grown just at the rate of inflation since 1990, the maximum monthly benefit for a family of three would be $620 today, far higher than actual benefits of $379 a month.

  • Expansions of job training and work supports such as child care:  Federal welfare changes included in the 2006 federal budget will require states to greatly increase the number of families engaging in work preparation activities and will increase the demand for child care services.  Yet no additional federal funds were provided for work activities, and child care funding increased only modestly.  Local increases in funding may therefore be needed.

End Notes:

[1] The full report can be found at http://www.cbpp.org/1-26-06sfp.htm.

[2] The method for measuring income in the CBPP/EPI report differs from income measures used in previous DCFPI analyses.  The new report focuses on income of families, two or more related people living together, while DCFPI has analyzed income inequality using household income, which includes single persons living alone.  The CBPP/EPI report also includes the impact of taxes and tax credits, including the EITC, and other public benefits that low-income families receive, providing a broad measure of family resources.  Previous DCFPI reports relied on Census data that did not include either taxes or public benefits.