Income Disparities in Virginia: A Growing Divide?

Last November, Peter Galuszka penned a column for the Bacon’s Rebellion e-zine, “The Invisible Working Class,” in which he decried the condition of working class Virginians. Drawing upon the book, “Deer Hunting with Jesus: Dispatches from America’s Class War,” by Winchester writer Joe Bageant, Peter offered considerable anecdotal evidence for the shrinkage of manufacturing jobs, stagnant incomes and lack of medical insurance. If he had had access as well to a new report by the Commonwealth Institute, he would have had a field day.

The Commonwealth Institute, a liberal think tank focusing on Virginia, covers the same ground as Peter and Joe — but with charts, graphs and statistics. The Institute’s newly issued report, “The Growing Divide: The State of Working Virginia,” reaches much the same conclusions. Among its main findings:

  • While Virginia’s growth in average wages has outpaced the national average, the trends are primarily benefiting Virginians in the top income brackets. Median wages (marking the point where 50 percent of wage earners fall above and 50 percent below) have stagnated or declined.
  • The gap in wages between whites and African-Americans in Virginia has been consistently higher than the U.S. and has not decreased substantially since 1979.
  • Despite favorable economic conditions, the number of Virginians without health insurance has been on the rise since 2001, and private pension coverage has declined almost 10 percent since 2001.

First, let me applaud the Commonwealth Institute for approaching the issue of income distribution in Virginia on a dispassionate and factual basis. All too often, people make a lot of wild claims with no grounding in the facts. The Commonwealth Institute has transformed the terms of debate in what appears, at least upon cursory examination, to be a fairly even-handed treatment. Although their purpose is to highlight disparities and injustices, the authors readily acknowledge the strengths of Virginia’s economy.

“The Growing Divide” is a fine example of the form that public policy debate should take. The report has opened up fresh avenues of inquiry, and it raises the level of debate in Virginia. I can pay no higher compliment.

That said, “The Growing Divide” is not without its flaws and limitations. My primary concern is that it is deceptive to discuss average or median incomes in terms of statewide averages. There are two Virginias: Northern Virginia and the Rest of Virginia. Wages and salaries are significantly higher in NoVa than RoVa. From the numbers in the report, it is difficult to tell if the wage disparities reflect a growing income gap within regions or between regions. If the gap reflects mainly the higher wages and faster growing population of NoVa, that’s quite different than a growing gap within regions. If the wage differential in NoVa is offset by a higher cost of living (especially housing), the implied disparity in living standards may be more apparent than real. We just won’t know until someone crunches the numbers region by region.

The same criticism applies to the comparisons of race. African-Americans comprise a higher percentage of the population in RoVa than NoVa. If wages are significantly higher in NoVa, and NoVa’s population is growing as a percentage of the state’s, the wage gap could signify little more than the fact that fewer African-Americans live in NoVa. Meaningful comparisons would look at the wage gap within regions.

Despite this significant reservation, the study highlights indisputable problems such as the fraying private safety net (medical insurance and pension funds), and looks at income statistics in refreshing ways. I am particularly impressed by the discussion of productivity. I will mine this data in future posts.

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  1. floodguy Avatar

    I have allows preferred the non-partisan, apolitical approach, to studying and soliving problems. A media personality who you can’t figure his/her political orientation is the best journalist or news anchor in my opinion. A politican who truly sets asides political differencs, is considered statesman, the highest form of praise by his/her peers.

    An apolitical approach in studying issues like income divide, appears to me would disclose all but hide nothing. It seems that under this method, it is easier to discern the facts, the problems, and the solutions.

    Most partisans think that those who unite, compromise their fundamental beliefs with watered downs solutions which are less effective. Others call them more efficient steps in the right direction with the ability to discern future changes.

    Most major shifts in policy tend to lead to feelings of disillusion, defeat, and revenge, resulting in highly-charge partisan behavior. I sure hope that’s not the case the “liberal” thinktank like The Commonwealth Institute.

  2. James Young Avatar
    James Young

    Two words: “Who cares?”

  3. Anonymous Avatar

    Not quite as simple as who cares but…

    In any society you are going to have the haves and the havenots

    The question becomes what is the role of government is making things more “equal”

    Thats what I am interested in what should we do about it or should we do anything at all.

    On the far right is the surivial of the fittest strategy to basically do nothing and on the far left is total income redistribution and socialisim

    The solution is obviously somewhere in the middle.

    Here is my personal “solution”

    An education system that provides equal opporunity for all and an open business climate that encourages innovation.

    We can argue about the details but overall I think Virginia can be pretty proud of the system we have


  4. E M Risse Avatar

    Two Points:

    Jim is right about two Virginia’s but…

    The bigger problem is thinking that any state border defines economic, social or physical reality.

    It is regions that count and need to be accounted for. New Urban Region and Urban Support Regions.

    Cost and expectations are lower or higher and cost are lower and higher depending on the region so comparing Regions is as silly as arguing who has the nicest grandchildren.

    The core issue is Balance on a Regional scale that yields the highest levels of safety and happiness for all citizens, not just those at the top of the economic food chain.

    Point two:

    NMM says:

    “An education system that provides equal opporunity for all and an open business climate that encourages innovation.”

    Hard to argue with that but what metrics does one use to firgure our when the education system or the market economy are performing well and how to make them better?

    Balance seems like a good place to start:

    Balance of J / H / S / R / A at all scales of human settlement patterns and, as we suggest in our current column, Balance between the Four Estates.


  5. Anonymous Avatar

    James Young,
    Two words: I care.

    Peter Galuszka

  6. James Atticus Bowden Avatar
    James Atticus Bowden

    Interesting moment of serendipity. I was looking for my powerpoint rework of the 1990-2 Future’s Study (for 2005-2015) I led. I was looking for the summary slide to put it on my blog.

    The summary slide, using the graphics of the day, is that the key to change in the future – domestically and internationally – is the political perception of economic change.

    The changer driver, the engine, is the ongoing shift from the Industrial Era to the Informational Era.

    One of the particular findings, based on this re-ordering of the economy was the growing gap between Haves and Have Nots. Specifically, the income distribution gap was forecast – 16 years ago.

  7. Anonymous Avatar

    J.A. Bowden,
    Good point. I agree with you this time.
    Peter Galuszka

  8. Groveton Avatar

    “Who cares?”

    -Czar Nicholas

    “Who cares?”

    -Marie Antoinette

    “Who cares?”

    -Mohammad Reza Pahlavi (former Shah of Iran)

    “I can solve this crisis!”

    -Mao Tse Tung

    “I can solve this crisis”

    Vladamir Lenin

    “I can solve this crisis”

    Ayotallah Khomeni

    Unreasonable wealth disparity in a society has always led to serious consequences for that society. Sometimes the society elects Communist/Socialist idiots who really screw things up. Sometimes the society sparks a revolution and those who were leading are deposed (and usually executed).

    Desperate people do desperate things.

    A lot of people in the United States are getting desperate.

  9. Anonymous Avatar

    “The core issue is Balance on a Regional scale that yields the highest levels of safety and happiness for all citizens, not just those at the top of the economic food chain.”

    I think this means the highest levels for all citizens consistent with continued opportunity.

    If you have so much income redistribution that those on the top (and those on the bottom) are no longer motivated, then you have a problem.

    Fundamentally you want those on the bottom to be able to buy enough stuff, so that those on the top can make more profits, and have more to redistribute, with some left over.

    As Henry Ford put it ” I want each of my workers to be able to buy one of my cars.”


  10. Anonymous Avatar

    “….the ongoing shift from the Industrial Era to the Informational Era.”

    I only beleive part of this. sooner or later someone is going to have to make stuff. Information tells me I’m cold or hungry. Stuff is what solves the problem.


  11. Jim Bacon Avatar

    RH, 100 years ago you would have been the guy who scoffed at the industrial revolution and the flight of workers off the farms. Sooner or later, you would have said, people are going to have to grow stuff. If manufacturing productivity continues to increase at the rate that it has for the past 20 years, we’ll be making more stuff than ever — with fewer people.

  12. Anonymous Avatar

    I wonder how much of the most recent run-up in great wealth relates to gains made from trading or speculating in commodities, interest rates, etc. versus earnings from buying and selling real goods and services. I don’t know the answer, but I think this is an important question that should be answered. How valuable to society is arbitrage? If it’s not as valuable as production or the delivery of real services, shouldn’t arbitrage be heavily taxed with the proceeds going to lower the tax burden on more productive activities?

    I suspect, but cannot prove, that much of the “winner-take-all” movement in the economy has taken place since the federal tax code was amended in 1993 to cap the amount of compensation at $1 M, unless there are performance standards. This little bit of populist grandstanding probably made things worse for the average U.S. resident. (Also recall that the grandstanders who supported this tax change would not also apply the limitation to Hollywood and Rock Stars and the like.)

    Illegal immigration adds to the problem. So long as we, as a nation, are willing to accept the importation of dirt-cheap labor to satisfy those on the right who would pay next to nothing for the production of goods and services and to satisfy those on the left who are looking to entrench themseleves in power with the creation of a huge dependent class and civil servants to attend to it, income levels at the bottom will not rise. Any form of amnesty will hurt Americans at the bottom.

    I suspect that some of inequality stems from those with skills and education passing along the costs of big government and higher taxes to those with fewer skills and lesser education in the form of lower wages. Illegal immigration makes this worse.

    In order to fix something, don’t we first need to identify the real causes?


  13. James Atticus Bowden Avatar
    James Atticus Bowden

    RH: The Industrial Era didn’t end agriculture (from the Agricultural Era). It transformed it. Likewise with Info. Technology permeates every aspect of a society and the underlying culture.

  14. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    “If you have so much income redistribution that those on the top (and those on the bottom) are no longer motivated, then you have a problem. “

    The bigger problem is when the middle class, who buy into the upward mobility hype, becomes unmotivated. And from what I’m seeing, we aren’t far off.

    People are tired of busting their butts for little gain, when all the profits go to the CEOs and all the benefits of society go to the permanently unmotivated.

  15. Anonymous Avatar

    “RH, 100 years ago you would have been the guy who scoffed at the industrial revolution and the flight of workers off the farms. Sooner or later, you would have said, people are going to have to grow stuff. If manufacturing productivity continues to increase at the rate that it has for the past 20 years, we’ll be making more stuff than ever — with fewer people.”

    Right. And nuclear power advocates once told us it would make power so cheap it would be free.

    Farmers now produce far more product than they did in years past. Some of that productivity comes from better information, sure enough. But, it didn’t make most farmers better off.

    “If manufacturing productivity continues to increase at the rate that it has for the past 20 years, we’ll be making more stuff than ever — with fewer people.”

    And, eventually we will be making so much stuff it will be free, and we will need so few people to do it, that you will have to pay for the privilege of having a job. Regular work will consist of using up our massive overproduction in order to keep the economy going.

    Really, for the average Joe, once I meet basic needs, how much more do I really need to know? If we don’t need (as many) people to grow and make stuff, then why do we need so many people to spin out “information”?

    It sounds like we might as well start teaching how to properly manage leisure time and leisure activities in our schools, because there won’t be anything to do except inform ourselves. we can have classes like contemplating Navel 101.


  16. Anonymous Avatar

    The guy who stands on the 95th percentile in income and wealth has most of the people below him, and most of the money above him.

  17. Anonymous Avatar

    5:33 You are correct and to make it worse, elected officials will propose someting that hits Mr/Ms 95% much harder than those will real money.


  18. Anonymous Avatar

    “People are tired of busting their butts for little gain, when all the profits go to the CEOs and all the benefits of society go to the permanently unmotivated.”

    The solution of course is for people to start their own business instead of being content wageslaves. (This is the final hurdle for India and China and they are rapidly adapting but that’s a whole other issue)

    Maybe that is the key that is missing in this debate. Everyone knows people don’t work for 30 years anymore. For people in my generation I think we are supposed to have at a minimum 7 careers and at least 15 different jobs

    However our education system is still focused on creating good employees for big corporations. At JMU where I went to school the business department curriculum is largely influenced by a handful of corporations. I know this is also true at UVA and at other universities.

    There needs to be some aspects of the traditional system that still teach basic skills, but I would argue other focus areas such as leadership and critical thinking need to be taught similar to the college format.


  19. Groveton Avatar

    I think Ray has a point about manufacturing. A world power can only lose so much manufactring clout before it is no longer a world power. I guess when an enemy attacks we can throw our cell phones at them (oops … we don’t even make most of the cell phones anymore – do we?).

    I think the combination of technological advance and globalization creates an environment where talent is leveraged. Students around the world learn physics from the Walter Lewin lectures available (from MIT) on the internet. Good for MIT’s reputation, bad for local physics teachers.

    This leveraging of talent contributes to an acceleration of the “winner takes all” structure. This, in turn, polarizes wealth.

    The rich can get richer and the poor can get poorer without causing a societal fiasco. However, the middle class must make economic progress. When the prosperity of the middle class stops the problems start. It seems to me that the middle class prosperity has stopped.

    The United States stands now at the start of a recession. Existing economic problems will only accelerate as the economy slows and ultimately shrinks over the next 2 – 3 years.

  20. Larry Gross Avatar
    Larry Gross

    Someone else touched on this but as long as you have a true Democracy and universal education, the middle class – as a majority – cannot be ignored.

    The problem that we have, IMHO, is that special interests control our government and in doing so – corrupt the Democratic process.

    I do not buy the “free speech” argument at all.

    People have free speech – not businesses and free speech is not money and money “used” as an excuse for free speech is a direct threat to Democracy because it disconnects the steering wheel of what voters want and gives control to special interests instead.

    When we say it is okay for businesses to “donate” to campaigns and at the same time public financing of campaigns is a “bad idea”, what we are saying is that we prefer for special interests to finance campaigns.

    Get the money out of politics and the middle class will take care of itself…. and Democracy will do what it is supposed to do.

  21. Anonymous Avatar

    “how much of the most recent run-up in great wealth relates to gains made from trading or speculating in commodities”

    Speculators do not set the prices.

    In commodity markets there are Traders (who actually take or make delivery of and item). They do this to hedge or avoid their risks.

    And there are Speculators. Speculators never deliver or recieve commodities, but they bet on whether the prices go up or down: they seek risk. Therefore they always have to settle their contracts before the due date.

    When the due date arrives, (or on any day) the value of the contract depends on the price at which REAL commodities were ACTUALLY sold or delivered on that day.

    The traders, then, wind up setting the prices. The speculators may make or lose money, but they don’t set the prices. What they do provide is liquidity, so that a buyer or seller can find a contract at any given time.

    Both the speculators and traders are necessary for the market to work. So, my answer is that arbitrage is necessary for the market to work efficiently.

    If the speculators make money, it is because they are very good at what they do.


  22. Larry Gross Avatar
    Larry Gross

    “Speculators do not set the prices.”

    tell me again about how Enron operated?

    what does “very good” mean in the context of law and ethics?

  23. Anonymous Avatar

    Here is one example of how Enron worked..When you have this kind of help……

    What Enron did was simply lie about their earnings. It had little to do with workings of ordinary commodity markets.


    (the following line falls at the end of the memo following.)

    Confidential Treatment Requested by Goldwyn, Sachs & Co.

    Perceptions toward Enron have fallen as dramatically over the past 18 months as we have
    seen for any major company. However, the major disconnect is that unlike many
    technology and other (former) high growth companies. Enron continues in our view to be
    the far-and-away best-in-class company in its major business segments. and to have
    company-making growth prospects, with a high probability of success, in huge new
    markets. Only 18 months ago Enron was perceived as a company that could do no wrong.
    It’s wholesale marketing operation (currently 77% of earnings) was viewed as having
    virtually limitless potential and its retail marketing business wasjust beginning to emerge as
    a business that could even surpass wholesale. Management presented its
    telecommunication strategy to Wall Street in January 2000 to great fanfare. It was this
    raising of expectations to (in hindsight) unreasonable levels and management’s failure to
    reset expectations for telecommunications when this business clearly was falling far short of
    the objectives set by management that set the stage for investors to lose trust in
    management and to discount other statements because disclosure and transparency of
    information was so limited.

    DISCLOSURES We believe perceptions have gone to such a negative extreme that a major
    uptick is likely in the near and intermediate term given actions we expect to be taken by
    management and new disclosures we expect with the Q3 report and at year end. We are
    decreasing our previous price target from $63 to $48, still representing 57% appreciation,
    based on an 18 multiple of forward earnings: we see this target as one that could easily be

    onfidentinI Treatment Requested by Golduwn, Snchs & Cu.


    GS 1021

  24. Anonymous Avatar

    The following is from a Senate


    “A. Findings
    1. Rise in Speculation. Over the past few years speculators
    have expended tens of billions of dollars in U.S. energy commodity
    2. Speculation Has Increased Prices. Speculation has contributed
    to rising U.S. energy prices, but gaps in available market data
    currently impede analysis of the specific amount of speculation, the
    commodity trades involved, the markets affected, and the extent of
    price impacts.”


    So the first finding is that speculators moved billions in and out of the energy commodity markets.

    The second “finding” is that speculation has increased prices but we have no idea how much, for what commodities, or in which markets.

    Which sort of raises the question of how the “finding” was made.

    We like to think that big bad speculators drive up the prices for the rest of us. But sooner or later someone is going to have to take delivery. If the price is too high, they won’t, and the speculator takes a bath. Just as in the housing market.

    The speculators are very good at what they do. If you don’t believe it, buy a couple of contracts, and see how you do.


  25. Anonymous Avatar

    Here is an example of how some people think it works:

    “Oil companies normally buy some spot oil futures against excess production by other oil companies to make sure they will have enough crude. In this legitimate market, there are only so many dollars chasing so many excess barrels of future oil.

    Pension and other large speculative bank-owned investors discovered they could manipulate the market out of sheer size. By making huge purchases of futures, they could accelerate fears, take oil offline, drive the price up even more – and make handsome profits in just a few weeks or months. The spot market is now distorted – too many dollars chasing around the same amount spot oil. Minor fluctuations in gas prices became wide swings. The word “hurricane” is all it takes to provide cover for raiders to buy in. Over time, the constant pressure to maintain futures profits has caused steep, consistent rises in baseline crude and refined prices over the past five years.”


    You can see the prooblem with this immediately. First, the speculator may be YOUR pension fund.

    Second, If they manipulate the market by sheer size, there won’t be any legitimate Traders to sell to when they all exit at once.

    If you are willing to take that risk, especially with borrowed money, then you should be a speculator.


  26. Anonymous Avatar

    So, Enron worked with a lot of derivatives, which meant that the value of their holdings was unobservable. Consequently, they couod use mark-to-market estimates to set their own value at anything they liked.

    Investment banks helped them, and the end result was that Enron basically lied about its value.

    Their entire “value” was based on information trading, but it had no underpinning from anyone actually making or selling or buying anything of physical value.

    Basically, they lied about what they were worth, and people believed them.


  27. Larry Gross Avatar
    Larry Gross

    “If the speculators make money, it is because they are very good at what they do.”

  28. Larry Gross Avatar
    Larry Gross

    I guess the concept of “trust but verify” does not apply to the government protecting the interests of consumers?

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