economic news | by john krantz, economist

Dividing the Pie: A Look at Household Income Distribution in Utah

Anger and frustration among those who perceive the current distribution of wealth and income in the United States as unjust have recently found expression in the ‘Occupy Wall Street’ movement. These sentiments have resonated with individuals across the country leading to the organization of affiliated movements in several cities, including the ‘Occupy Salt Lake City’ effort. While many of the protesters are undoubtedly motivated by a variety of different reasons, the slogan “We are the 99%” suggests that there is at least some belief that the distributions of wealth and income are issues of primary concern. With this topic recently and frequently making the headline news, it is an opportune time to look at the facts concerning income distribution in Utah.

A common approach for examining income inequality is to rank households by total income and separate them into quintiles. If household income were distributed with perfect equality throughout society, each quintile would receive 20 percent of the total household income. Regardless of whether it is measured at the level of the nation, state, county, city, or census tract, nowhere within the United States is household income distributed with perfect equality. In fact, household income inequality follows a general pattern that holds true at both the national and state levels: The share of aggregate household income received by each of the bottom three quintiles is less than 20 percent, while the upper two quintiles each received more than 20 percent. In Utah, the bottom 20 percent of households received 4.2 percent of aggregate household income with the second and third quintiles receiving 10.2 percent and 16 percent, respectively. The top 40 percent of households received nearly 70 percent of all household income with 23.4 percent going to the fourth quintile and 46.1 percent going to the top 20 percent of households.

What causes household income inequality? While this question may appear simple to answer, it is not. No single cause accounts for all income inequality and there is considerable disagreement over many of the proposed causes. While no attempt is made here to validate any of these explanations, the rise in household income inequality has been variously attributed to the decline of labor unions, the increase in dual-earner households, a movement away from a progressive tax system, an influx of lower-skilled immigrants, a growth in demand for highly-educated and highly-skilled labor, a lack of demand for lower-skilled workers resulting from laborsaving technologies, and partisan-based public policies, to name only a few.

Looking at the data for Utah, several relationships between household income and demographic characteristics are clearly discernable. Larger households are associated with higher household incomes. Income from capital is also related to household income. While the relationship is not strictly increasing for all quintiles, larger percentages of individuals who receive income in the form of interest, dividends, or rent are associated with higher levels of household income. The last set of demographic characteristics considered here concerns the levels of educational attainment by quintiles. In the bottom 20 percent of households, just over 19 percent of individuals age 25 or older do not have a high school diploma and only 13 percent have a bachelor’s degree or higher. At the other end of the spectrum, among those 25 or older who live in the top 20 percent of households, only 3 percent do not have a high school diploma and nearly 46 percent have a bachelor’s degree or higher. While these relationships might be expected, the percentages for those with an associate’s degree or some college acrossquintiles are somewhat unexpected. Individuals 25 or older with an associate’s degree or some college make up between 34 to 39 percent of each quintile and there appears to be no systematic relationship to household income. This appears to suggest that the extremes of the educational attainment hierarchy (i.e., very low or very high levels of education) are more important as potential predictors of household income than intermediate levelsof education.

How unequal is household income in Utah as compared with other states? In a recent report by the Census Bureau, Utah was found to have the lowest income inequality among the 50 states.1 Moreover, the report found that Salt Lake City had the lowest household income inequality among metropolitan areas with populations of 1 million or more and West Jordan city had the lowest inequality among large places with populations of 100,000 or more. The lower income inequality in Utah can be appreciated by comparing mean household incomes by quintiles with the United States. For the bottom three quintiles, Utah’s average household incomes are $3,000 to $4,500 higher than the national averages. And the top 20 percent of households in Utah receive $14,000 less than the top 20 percent of all households in the country on average. Only for the fourth quintile of households does Utah have roughly the same average household income as compared with the nation.

Why does Utah have the lowest household income inequality in the nation? While this question is just as difficult to answer as the more general question of what causes income inequality, a partial answer can be provided. According to the previously mentioned Census Bureau report, three of the six variables that exhibited the strongest relationships to household income inequality were the fraction of households with two or more workers, the fraction of households with no workers, and the fraction of persons 25 or older with less than a high school diploma. For each of these three variables, Utah is considerably different than the nation. Only 20 percent of all households in Utah have no workers as compared to 27 percent for the US. Furthermore, 41 percent of the households in Utah have two or more workers while only 33 percent of households nationwide have two or more workers. Finally, Utah has a lower percentage of individuals 25 or older with less than a high school diploma relative to the nation: 9.4 percent as compared to 14.4 percent.

A comprehensive explanation of why Utah has the lowest household income inequality in the country may require an examination of dozens of variables. Nevertheless, it appears that two of the most important reasons for Utah’s low measure of inequality are a relatively high minimum standard of education and a comparatively high number of workers per household.

1The report can be found at http://www.census.gov/prod/2011pubs/acs-16.pdf