Prosperity Watch Issue 33, No. 4: Income inequality rises in North Carolina

Over the past 30 years, income inequality has increased significantly, a middle class wages have stagnated and low-skill middle wage jobs have vanished. The result has been an unprecedented division between the economic trajectory of the wealthiest in our state and everyone else.

A growing body of research shows that high levels of income inequality have a host of negative outcomes.  In fact, income inequality has been associated with slowing the pace of economic expansions and deepening downturns while also deterring entrepreneurship.  For the economy, high levels of income inequality signal an erosion of the middle class, which delivers important buying power and workforce productivity.  More broadly, researchers have shown income inequality drives pessimism, creates more divisive politics and isolation of different groups from public life.

In North Carolina, income inequality remains a serious challenge.  In the past year, more than half of all the state’s income went to those in the top 5 percent of households.  Driving this trend is in part the growing divergence in wage gains.  Over the past three decades, wages have grown primarily for those at the top while the median worker has seen their wages stagnate.  The median worker in North Carolina in the past decade has actually seen their wages fall in the first decade of the 21st century.

Policymakers have the opportunity to reverse this troubling trend through sound public policies that help grow an economy that benefits all North Carolinians. At the top of the list is addressing the upside down nature of the state’s tax code, which asks those at the bottom to pay a greater share of their incomes in taxes than those at the top, and is a major driver behind income inequality. It is also important to invest in tools that support equality of opportunity for all people—such as high-quality public schools and job training programs—and in the meantime provide adequate services to those in need.


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