Divergent Fortunes: Top Incomes and the Middle Class in Pennsylvania’s Counties

Authors: 
Ellis Wazeter
Authors: 
Estelle Sommeiller
Authors: 
Luis E. Basurto
Authors: 
Mark Price
Publication Date: 
September 16, 2014

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Executive Summary

Growing economic inequality remains one of the most pressing public policy issues in Pennsylvania today. This paper explores long term trends in inequality at the county level in Pennsylvania using two yardsticks for the degree of inequality within a community: the share of households earning middle-class incomes and the share of total income in the county earned by the top 1% of taxpayers.  We find income inequality using both yardsticks has increased within every county (or county grouping) in Pennsylvania since the late 1970s. (Estimates on the income earned by the top 1% are available for each county; estimates of the size of the middle class are available for 16 individual counties, with Pennsylvania’s other 51 counties divided into 11 multi-county groups.)

The Shrinking Middle Class

We defined the middle class in each county (or county grouping) as the percentage of households with incomes between two-thirds of the median household income in the county and twice the median county income. Our findings in brief follow.

The percentage of households with middle-class incomes has declined from 62.3% to 53% in Pennsylvania as a whole since the late 1970s. Examining data at the county level we find the middle class got smaller in EVERY county or county grouping in Pennsylvania.

The counties or county groups with the largest percent decline in the share of households with middle- class incomes were (in parenthesis is how much the middle class shrank – the percent decline in the size of the middle class – followed by the share of households in the middle class in 2010-12):

  • Delaware (the middle class shrank by 20.9% -- more than a fifth – to 50.9% of the households in 2010-12), Philadelphia (middle-class shrinkage of a fifth to 43.1%), Columbia, Luzerne, Montour, & Northumberland (shrinkage of nearly a fifth to 53.3%), Bucks (down 17.6% to 56.8% ), Erie (down 16.7% to 55.1%), Chester (down 15.9% to 54.8% ), Westmoreland (down 15.8% to 55.6%), Allegheny (down 15.6% to 53.0%), Armstrong & Indiana (down 15.6% to 53.7%), Lebanon (down 15% to 58.2%), Centre (down 15% to 50.1%).

The counties or county groups with the smallest decline in the share of households with middle-class incomes (in parenthesis is the percent decline in the size of the middle followed by the middle-class share in 2010-12):

  • Crawford & Warren (down 8.1% to 56.8%), Cameron, Clarion, Clearfield, Elk, Forest, Jefferson, McKean, Potter, & Venango (down 8.7% to 58.1%), Bedford, Blair, Cambria, Fulton, Huntingdon, & Somerset (down 9.2% to 58.0%), Cumberland & Perry (down 10.4% to 59.3%), Clinton, Juniata, Mifflin, Lycoming, Snyder, & Union (down 10.5% to 57.6% ), Lancaster (down 11.3% to 58.0%), Schuylkill (down 11.4% to 58.6%), Fayette, Greene, & Washington (down 11.4% to 54.9%), Dauphin (down 13.2% to 55.3%), Adams, Franklin, & York (down 13.4% to  58.8%).

The counties or county groups in Pennsylvania with the largest middle class are (in parenthesis is the middle class share in 2010-12):

  • Cumberland & Perry (59.3%), Adams, Franklin, & York (58.8%), Schuylkill (58.6%), Lebanon (58.2%), Butler (58.1%), Cameron, Clarion, Clearfield, Elk, Forest, Jefferson, McKean, Potter, & Venango (58.1%), Bedford, Blair, Cambria, Fulton, Huntingdon, & Somerset (58%), Lancaster (58%), Clinton, Juniata, Mifflin, Lycoming, Snyder, & Union (57.6%), Crawford & Warren (56.8%)

The counties or county groups in Pennsylvania with smallest middle class are (in parenthesis is the middle class share in 2010-12):

  • Philadelphia (43.1%), Centre (50.1%), Delaware (50.9%), Allegheny (53.0%), Columbia, Luzerne, Montour, & Northumberland (53.3%), Armstrong & Indiana (53.7%), Chester (54.8%), Fayette, Greene, & Washington (54.9%), Erie (55.1%), Dauphin (55.3%), Bradford, Carbon, Lackawanna, Lehigh, Monroe, Northampton, Pike, Sullivan, Susquehanna, Tioga, Wayne, Wyoming (55.3%)

Exploding Top Incomes

Our second yardstick for judging the degree of income inequality is the share of all pre-tax and transfer income (here after referred to as total income) captured by the highest 1% of earners. Building on analysis released in February[1] that tracked changes in top incomes by state between 1917 and 2011 this paper explores trends in income growth for the top 1% of taxpayers by county in Pennsylvania since 1978. (See the online appendix for top income levels and shares by county since 1973.) 

Our main findings with respect to top incomes follow:

In 1978 the share of total income captured by the top 1% of taxpayers did not exceed 10% in any county in Pennsylvania. By 2011 the top 1% captured more than 10% of income in all but 6 Pennsylvania counties.  

The rapid increase in the share of all income captured by the top 1% of taxpayers was driven by radically lopsided income growth between 1978 and 2011. In NO Pennsylvania county between 1978 and 2011 did the income growth of the bottom 99% exceed the income growth of the top 1%. Over this period, the real income of the bottom 99% of taxpayers grew in only 21 of 67 Pennsylvania counties.

The counties with the greatest income growth among the top 1% were (in parenthesis is the percent increase in real income between 1978 and 2011):

  • Forest (757%), Bucks (278%), Chester (250%), McKean (245%), Greene (238%), Washington (211%), Bradford (208%), Potter (203%), Delaware (202%), Susquehanna (193%).

The counties that saw the least amount of income growth among the top 1% of taxpayers were:

  • Clearfield (18%), Monroe (19%), Clarion (20%), Venango (22%), Perry (31%), Snyder (33%), Juniata (41%), Elk (43%), Huntingdon (46%), Mifflin (48%).

The 10 counties with the largest share of all income earned by the top 1% in 2011 ordered from most to least (in parenthesis is the income share) were:

  • Forest (33.9%), McKean (25.2%), Somerset (21%), Montgomery (20.3%), Allegheny (20%), Delaware (18.7%), Philadelphia (18.1%), Potter (18%), Greene (17.9%), Chester (17.6%).

The 10 counties with the smallest share of all income earned by the top 1% in 2011 ordered from most to least (in parenthesis is the income share):

  • Franklin (11.1%), Bedford (10.7%), Lebanon (10.3%), Fulton (10%), Huntingdon (9.9%), Carbon (9.9%), Monroe (9.6%), Snyder (9.5%), Juniata (9.1%), Perry (6.7%).

From Lake Erie in the northwest to the Delaware River in the east and southeast, from the three rivers that come together in Pittsburgh to the Pocono Mountains in the northeast, across rural, central city, and suburban areas, economic inequality is up in every part of Pennsylvania.

If current trends remain unchecked, in another generation (defined as another 33-year period – until about 2045) the middle class in even Central Pennsylvania[2] – the region today with the largest middle class – will be a minority.  Unchecked the share of total income captured by the highest earning 1% in Central Pennsylvania will reach 18% (it is now 12%, it was 6% in 1978).  In this respect Philadelphia and Allegheny Counties, home to the commonwealth’s two largest cities, have already arrived where the rest of Pennsylvania is headed. Today the city of Philadelphia has the smallest middle class (42%) and Allegheny County the fourth-smallest middle class (53%).  Similarly the share of total income captured by the highest earning top 1% of taxpayers is 18% in Philadelphia and 20% in Allegheny County. 

The divergent fortunes of Pennsylvania’s middle class and of its highest earners are the result of policy choices and business practices that have broken the link between rising productivity and wages for working families. Rising labor productivity generates income growth, but whether that income shows up in the paychecks of most workers or flows mostly to the top depends both on the effort policymakers put towards achieving full employment and on the rules that govern how the labor market operates. On both counts policymakers have fallen short and the result is the growth in income inequality in every part of Pennsylvania.  

As a first modest step in checking this rise in inequality observed in this report we recommend that Pennsylvania policymakers raise the states minimum wage to at least $10.10 per hour, index the minimum wage to inflation and apply the new minimum to tipped workers.[3] This policy, most especially the inflation adjustment would stabilize the incomes of low-wage workers in Pennsylvania, a group of workers that despite being better educated and more productive earn less today than they did in 1979.

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[1] See Estelle Sommeiller and Mark Price, The Increasingly Unequal States of America: Income Inequality by State, 1917 to 2011. http://www.epi.org/publication/unequal-states/

[2] Central Pennsylvania is defined here as Perry, Cumberland, Adams, Dauphin, Lancaster, Lebanon, Franklin, York

[3] The last increase in the state minimum wage in Pennsylvania left the minimum wage for tipped workers at $2.83 per hour.