How the poverty gap fell - and why few are cheering

The poverty gap between the races has narrowed in the United States since 1995. The difference in poverty rates between non-Hispanic whites and minorities dropped 19.4 percent in the seven years to 2002, claims a study by Neil Wollman and colleagues at Manchester College in North Manchester, Ind.

But before you start cheering, note that trends in American incomes are complex. While some statistics show progress toward equity, others show deterioration. Analyzing the numbers has become a mini-industry for a host of academics and think tanks.

Often, the complexity gets boiled down into sound bites by politicians pushing a view. Nuances get lost. But with the help of three new studies, some significant conclusions about the overall income scene can be drawn. The bottom line: in terms of income, the disadvantaged are catching up (a little) with the white Joneses; but overall, the gap between the prosperous and the poor is growing.

No one knows for sure what narrowed the racial poverty gap. Jared Bernstein, an income expert at the Economic Policy Institute in Washington, credits the tight labor market of the late 1990s. It prompted employers to hire more blacks and other minorities and to pay them more, lifting many out of poverty.

The 2001 recession and ensuing jobless recovery probably reversed their progress. Overall poverty deepened in 2002, the latest year for which official numbers are available. The jobless rate for blacks rose from 7.6 percent in 2000 to 10.8 percent in 2003.

Yet when the 2003 poverty numbers come out this fall, they may show that nonwhites held onto some of the ground they gained during the boom years, Mr. Bernstein says.

Nevertheless, nonwhites were still 162 percent more likely to be poor than whites in 2002. If progress continues at the 1995-2002 pace, poverty parity will not be achieved until 2018, or even 2031, depending on the method of calculation, the Manchester researchers figure. "These income gaps are not good for a society which holds equality as a primary value," says professor Wollman.

Despite the narrowing of the white/nonwhite poverty gap, the distance between the rich and the poor in general widened during the same period. (Remember, income issues are complex!)

That growing income gap is reflected in another study. Million-dollar houses, uncommon a decade ago, became a rapidly growing segment of housing markets in the 1990s, Harvard University's Joint Center for Housing Studies finds. More than 400,000 exist in the US today, up at least 120 percent from 1989.

In the past decade, existing homes have become more expensive, especially in California and the Northeast. And new houses tend to be bigger and more luxurious. A few million well-to-do families can afford these homes, some of them dubbed "monster mansions."

By now, the study finds, these expensive homes account for nearly one-fifth of all household wealth in the US. Yet, on average, these million-dollar homes cost their owners only three times their annual income. They are affordable to them.

But not so often to minorities. One out of 17 white homeowners owns a luxury home, but only one out of 33 minority homeowners has such a costly house.

It "reveals the widening disparities between the housing haves and the housing have-nots," states Nicolas Retsinas, center director. "Ironically, in the midst of a shortage of affordable housing, million-dollar homes have become increasingly common."

That bad news is tempered, however, by another study that indicates the "economic well-being" of American households and families is "a bit" less unequal than the government's purely income numbers indicate. That's especially so for the gap between whites and nonwhites.

New research by a trio of economists for the Levy Economics Institute at Bard College in Annandale-on-Hudson, N.Y., takes account of the value of work in the home (such as child care, cleaning, shopping), government transfers (including welfare and disability payments), tax factors, income from wealth, employer contributions for health insurance, and actual rents or imputed rents for housing, some of it subsidized - as well as the paid work noted in government statistics.

Their goal is to measure how many goods and services members of a household can buy or otherwise obtain - not just their income.

The difference between these two numbers is substantial - nearly 30 percent. In 2000, for instance, median money income - the level at which as many households had less income as those with more income - stood at $42,000. But adding in the other factors to achieve "household economic well-being" raises the median to $68,529.

So this is the good news. Details in the study show that Americans earning less than $50,000 in money income are a bit better off in terms of their being able to obtain goods and services than the government's income statistics indicate.

One reason the income gap isn't even worse is that some members of households are working more hours to keep up with their bills. In many cases, both spouses work or one tackles two jobs.

The median annual hours of total work for households increased from 4,401 in 1989 to 4,727 hours in 2000, the equivalent of more than eight weeks of full-time work. As a result, even families doing better economically may feel they are on a treadmill of work with little time for relaxation.