Income chasm widening in state

Only the top earners gaining, study finds

The gap between rich and poor has widened substantially in Massachusetts over the past two decades, according to a new study by the University of Massachusetts. Only those earning the highest incomes benefited from gains in technology, productivity, and globalization, while middle-class earnings stagnated and incomes for poor families plunged 15 percent.

The report analyzed census data between 1979 and 2006. It found that after the so-called miracle years of the 1980s, when rising incomes were broadly shared, only families in the top 20 percent of the income scale experienced substantial gains.

Adjusted for inflation, median family income for this group rose 11 percent between 1989 and 2006. The earnings of middle-class families were essentially flat during that period, and those of the poor fell.

"Our economy remains very productive, but it shares the gains with only a small slice," said Rebecca Loveland, a coauthor of the study and research manager at the UMass Donahue Institute, a research and economic development unit of the university. "Families with the lowest incomes are still suffering the most and continue to lose."

The poorer have gotten poorer, in part, because of profound changes in the economy. Foreign competition and automation, for example, have eroded manufacturing jobs in Massachusetts, which have fallen by about half since the late 1980s. That has closed a path to middle-class wages for many less educated and less skilled workers, and left them with low-paying service jobs, Loveland said.

These workers, in turn, must compete with a vast pool of low-skilled workers, which holds down wages, Loveland said. Meanwhile, those with skills and education can command premium pay as companies compete to hire them. In Massachusetts, growing biotechnology, technology, and financial services sectors are competing for highly skilled workers, often in short supply, and paying high salaries to get them.

The result is not only a wider gap between rich and poor, but additional pressure on those at the bottom. As highly paid, highly skilled workers spend, prices can rise across the board, putting most of the squeeze on lower-income groups.

One example is Boston's housing market. The combination of tight supply and high incomes has made it one of the nation's costliest, even in a downturn.

Annette Jones, 60, of Dorchester, earns $25,000 a year as a receptionist, but had to pay more than $1,500 a month to get an apartment big enough for her and two children. Her 18-year-old daughter is autistic and receives disability payments, which helps Jones make ends meet.

But that's getting harder to do, Jones said. A divorced single mother, she has not had a raise for several years, but costs keep rising. She's squeezed her food budget by buying in bulk, has cut out roller skating trips with her children, and expects another winter with the thermostat set no higher than 65 degrees.

Making things even tougher, her employer recently changed its health plan, and Jones's out-of-pocket expenses for medication have risen to as much as $300 per month, from $60.

"Everything is going up except my paycheck," she said. "I'm always robbing Peter to pay Paul."

While many economists have raised concerns about income inequality in recent years, others say studies such as UMass's fail to account for an important component of the US economy: mobility. In other words, a family at the bottom of the income scale in 1979 could have moved to the top by 2006 as wage-earners improved skills and education and found higher-paying jobs.

In addition, income is not necessarily the best way to measure economic well-being, said David Tuerck, executive director of the Beacon Hill Institute, a think tank at Suffolk University.

"What really matters is expenditures, what a household can and does spend," Tuerck said. "If Bill Gates's income goes to zero, he could still live a pretty good lifestyle spending his billions."

Certainly, said Loveland, many people move up the income ladder, but it's unlikely income mobility has increased as fast as inequality. Those at the bottom also have much further to go.

In 1979, for example, the inflation-adjusted median income for the bottom 20 percent was about $21,000, compared to $130,000 for the top 20 percent, a difference of $109,000, according to the UMass study. By 2006, the gap had grown to $156,000 as earnings at the top of income scale grew to about $176,000, but fell to $20,000 at the bottom.

Andrew Sum, director of the Center for Labor Market Studies at Northeastern University, said there's increasing danger the gap will widen. Of particular concern, he said, is the increase in the number of single-parent households, which typically earn much less than those with two parents and have a far more difficult time moving up the ladder.

Families at the top often have two parents earning high salaries, Sum said. At a time when education is considered key to future earnings and money determines the quality of education, these developments threaten to entrench an ever-starker inequality, Sum said.

"Family income has a big impact on whether you go to college and matters more than it ever did before," Sum said. "The income gaps are going to get bigger and next-generation consequence is really severe."

Robert Gavin can be reached at rgavin@globe.com.