Lower pay for poor is what’s widening U.S. income gap, study finds

WASHINGTON (AP) – The income gap in major U.S. cities goes beyond the trend of rising paychecks for those at the top: Pay has plummeted for those at the bottom.

Many of the poorest households still earn just a fraction of what they made before the recession began in late 2007. Even as the recovery gained momentum in 2014 with otherwise robust job growth, incomes for the bottom 20 percent slid in New York City, New Orleans, Cincinnati, Washington and St. Louis, according to an analysis of census data released Thursday by the Brookings Institution, a Washington think tank.

“It’s really about the poor losing ground rather than these upper-class households pulling away,” said Alan Berube, a senior fellow at Brookings and deputy director of its metropolitan policy program.

Consider Cincinnati, home to such major companies as Procter & Gamble and Macy’s that are associated with middle-class prosperity. Its bottom 20 percent earned just $10,454 in 2014. After inflation, that’s 3 percent less than what they earned in 2013 – and 25 percent below their incomes when the recession started eight years ago.

Cincinnati’s top 5 percent of earners made at least $164,410 in 2014, a figure that has increased since 2013, though it remains 7 percent below prerecession levels.

The consequence is a widening income gap. The top 5 percent earned 15.7 times what the bottom 20 percent did in Cincinnati. Nationally, this ratio was 9.3 – the same as in 2013. Before the recession, the ratio was 8.5.

The poorest have clawed back some of their earning power since the economy officially began to recover 6 1/2 years ago. But the analysis suggests strong job growth and modest pay raises have failed to pull millions of Americans back up the economic ladder.

The findings also complicate plans by presidential candidates to combat inequality because it’s unclear how tweaking tax rates on the wealthy – the Democrats largely favor increases, the Republicans cuts – will boost pretax incomes for the poorest. Congressional Republicans have discussed increasing tax cuts for low-income workers without children as a way to address the absence of wage growth. It’s a plan, President Barack Obama said in his State of the Union address Tuesday night, that “we can all support.”