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Connecticut’s declining manufacturing sector and increasing reliance on the financial-services industry has resulted in a widening income gap between rich and poor that in one generation has seen the state go from a place of relative wage equality to one of the worst examples of inequality, according to a report released Tuesday.
The State of Working Connecticut report, issued annually around Labor Day by the advocacy group Connecticut Voices for Children in partnership with the Economic Policy Institute, highlighted a series of disturbing trends in Connecticut, including the lack of job recovery after the Great Recession and a more than decade-long streak of only the highest earners seeing real wage increases.
But one of the most startling changes brought to light in the report was how far the state has fallen in retaining a high quality of life for the average worker.
“For the vast majority of workers in Connecticut, real wages have not meaningfully increased in over a decade, exacerbating the trend of growing inequality,” according to the report authored by Nicholas Defiesta and Wade Gibson. “Should present wage trends continue, Connecticut’s growing retired population will depend on a workforce that is not only increasingly small but also increasingly low-paid, a troubling mix that will challenge the sustainability of our economy and continuity of our quality of life.”
Gibson said the growing income gap between rich and poor is a national phenomenon, but he acknowledged that Connecticut — once a state where differences were least pronounced — now has the second-worst pay disparity, after only New York.
“We were, two generations ago, one of the most industrialized states in the country,” Gibson said in a conference call.
But a decline in manufacturing as work moved down south and overseas during the past 35 years made the state vulnerable to pay inequality as many middle-income jobs disappeared, to be replaced by low-wage work. At the same time, a rise in high-paying financial services jobs created a large amount of wealth for the lucky few, causing measures of income inequality to rise, he said.
Gibson said it’s hard to pin the problem on any particular policy failures by state government. But he said he believed the government could help improve the situation by providing more support for working families statewide.
Among the policy improvements suggested in the report were that the state fulfill its promise to restore Connecticut’s earned income tax credit to its original level. The credit originally had been pegged at 30 percent of the federal credit, but had been cut in subsequent budgets to try to rein in costs.
The report also called on the state to expand access to early care and education and to add a tax exemption for dependent children.
“A small state with slow population growth cannot afford to leave behind so many of its future workers, parents and leaders,” the report said.
Gibson said that about 40 percent of the state’s budget a generation ago had been devoted to programs targeting children, but the focus has shifted in other directions more recently. He said the state now devotes closer to 30 percent of its resources to children-related programs.
“This shift is a shift of close to $2 billion a year away from kids,” he said.
Connecticut's labor force participation reached a low of 64.9 percent last year, a drop of three percentage points in two years. The decline is more than triple the national decline.
The youngest workers in state have seen a pronounced drop in labor force participation, from about 75 percent to 53 percent in less than two decades. Older workers' participation is up from 35 percent to more than 44 percent.
At the current rate, it will take three more years for the state's employment levels to reach pre-recession numbers. Connecticut had more jobs in 1989 than in 2014.
The top 1 percent of state earners averaged $2.18 million in annual income in the most recent figures available. That's 40 times the average state income of $53,694.
Since 2000, the state's median hourly wages fell 5.1 percent, versus 1.3 percent nationally. Even workers with college degrees have been hit, seeing a 2.5 percent decline in hourly wages since 2002.
Source: State of Working Connecticut 2014, http://www.ctvoices.org/StateofWork