Tuesday, January 31, 2006

Are income disparities in Texas a bad thing?

I wanted to comment on this article from last week in the Chronicle:
No state in the nation has a wider gap between its richest and middle-income families than Texas, according to a national study released Thursday.

At the same time, Texas ranks second only to New York when it comes to income disparities between the richest and poorest families [thank you Wall Street], according to the study by the Center on Budget and Policy Priorities and the Economic Policy Institute in Washington, D.C.

"Texas has arguably the most extreme separation between the well-off and everyday people in the United States," said Don Baylor, a policy analyst at the Center for Public Policy Priorities, an Austin think tank that advocates for working families.

"In many states, the income gap is like a gully," he added. "In Texas, the income gap is like a deep canyon."

The article goes on with the data details, suspected causes, disagreements, and possible "solutions".

So let's break this down. Take your average U.S. state, like Ohio or Minnesota or Missouri, with its "normal" income disparities. Now ask how Texas is different. Well, for one thing, we have a whole lot of Fortune 500 companies, an extremely vibrant set of businesses and industries, and even a fair amount of high-paying tech thrown in. That means some high-salary jobs at the top, probably quite a few more of them than your average state. When it comes sheer numbers of top-tier jobs, Texas is one of the "Big 3" along with California and New York.

Now, that creates a lot of economic opportunity here. That opportunity, combined with our geography, attracts tremendous numbers of unskilled, low-income immigrants that want a better life for them and their children. That means our incomes have higher highs and lower lows. Those large masses at the low end also skew down our "middle 20%" group mentioned in the article. In other words, if the bottom 40% weren't here, then our new "middle 20%" would be what is currently our upper-middle 20% with much higher incomes, and therefore less disparity between the top and the middle.

So my question is, which of these things would you like to eliminate to reduce Texas' income disparities: high-paying jobs, economic opportunity, or the immigrants it attracts? Any of these will work. Ship out the high-paying jobs to other states and we can reduce income disparities. Reduce economic vibrancy and we'll lose high-paying jobs and attract fewer poor immigrants. Or we can just erect a wall at the border and prevent any newcomers from coming to Texas at all (actually, some people might think that's a good idea, but I'm not one of them).

Of course, when you look at it that way, all of those options are nuts. Our wide income disparities are the result of good things happening in Texas. I'm not saying we don't have plenty of issues around education, globalization, the minimum wage, outrageous executive pay, and taxes, but the goal is not to minimize income disparities, but to make sure we have a steady flow of social mobility up the economic ladder (see yesterday's post). This will, of course, attract a new "bottom 20%" to come into the state as the current "bottom 20%" moves up.

Out of curiosity, I found the full study on the Internet to discover who the "best" five states are in their opinion based on minimal income inequality. Their top five: Wyoming, South Dakota, Iowa, Wisconsin, and Nebraska. Few major cities, high-paying jobs, or economic opportunities: check. Few immigrants: check. These are supposed to be our aspirational role-model states?

And here's an interesting little stat buried in the study and completely ignored: the District of Columbia has both the lowest and the highest incomes, yielding a whopping 22.7 multiple between the highest and lowest income quintiles, almost double the top states of New York and Texas. What does that say about the seat of our federal government? Business can offer good opportunities, but clearly government lobbying is the place to be if you really want to hit the big time...

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