TRENTON: The rich are, indeed, getting richer. A new analysis shows that income is very unequally distributed in New Jersey, and that over the past decade the most significant change has been that the share amassed by the group at the top has grown a bit.

Those are among major findings of Growing or Growing Apart?, released by New Jersey Policy Perspective. Dr. Judith M. Fields, an economist on the faculty of Lehman College at the City University of New York, wrote the report. "There might not be any question more fundamental to the wellbeing of our economy, the security of our social structure and the state of our politics than 'Who gets what,'" said Jon Shure, NJPP president. "One need not be a card-carrying utopian to be alarmed at these findings."

Dr. Fields's study shows that during the period of 1995-97, 20 percent of individuals in New Jersey received 53 percent of the state's total income. Put another way, it breaks down like this:

• For every dollar earned, the top 20 percent got 53 cents.
• The next 20 percent got 25 cents.
• The 20 percent after that got just about 15 cents.
• The next 20 percent got under seven cents.
• The bottom 20 percent got a little more than a penny.

By comparing the 1990s data with pooled data from 1985-87 the study found that the gap between the richest and poorest has grown. In the 80s the top group made 47 times more than the bottom group; in the 90s they made just over 50 times more.

Data used in the report comes from the Census Bureau's annual Current Population Survey. It is based on before-tax income for all individuals living in New Jersey, age 16 and over, who reported any income from wages, salaries, self-employment, interest, dividends, alimony, child support or retirement pensions other than Social Security. Data were pooled for a three-year period to increase sample size, improving the precision of the results. The measure of income for those in the top 20 percent is likely understated because capital gains income is not included and Census data don't reflect earnings greater than $100,000. This is counterbalanced by not counting income from governmental transfer programs like Social Security or welfare, producing an underestimate for those in the bottom 20 percent. All income figures are expressed in real (constant 1997) dollars.

Among other findings:

• Distribution of earnings only for workers showed a larger proportionate increase in overall inequality than the distribution of income for all persons. This indicates that earnings of lower paid persons are falling behind higher paid workers.
• "Unearned" (like dividends or alimony) is distributed much more unequally than "earned" income (from wages and salaries).
• But even leaving out this earned income, the largest increase in inequality occurred for the wages, salaries and self-employment income of full-time workers.

The figures for New Jersey are consistent with national findings in recent years that show income distribution to be at its most unequal level since the start of the Great Depression in 1929.

"The sobering answer to 'who gets what' in New Jersey sets a baseline against which to gauge the years to come," Shure said. "It is no abstract economic concept. Any number of policy choices ought to spring from understanding income distribution."

For example, future changes in the state's tax system ought to include lowering those taxes that place a higher proportionate burden on lower income people—like the sales and local property tax. "At a time when the easy answer to questions about taxes is to say that raising them has inherently negative consequences, we need fuller debate," Shure said. "And the distribution of income needs to be part of that debate."

Dr. Fields's study used a simple, conventional method for measuring and illustrating income distribution. It lined up, in effect, all the people in New Jersey and divided them into five equally sized groups. Then it measured what percentage of total income each group got. If income were uniformly distributed, each 20 percent of the population would get 20 percent of the income.

New Jersey Policy Perspective is a nonpartisan, nonprofit organization that conducts research on state issues. Previous NJPP reports have dealt with the impact on New Jersey from the federal balanced budget agreement; the state's senior citizen property tax freeze; and state income tax thresholds for the working poor.

TAX REFORM

WORK & WAGES

BUDGET & FISCAL POLICY

TRANSIT ISSUES

ECONOMIC DEVELOPMENT

VOTING & GOVT REFORM

© 2008 New Jersey Policy Perspective