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New Jersey has among the largest gaps in the nation between the highest and lowest income households, and that gap has grown significantly in the last 30 years, according to Pulling Aparta comprehensive new state-by-state analysis of income trends by the Center on Budget and Policy Priorities (CBPP) and the Economic Policy Institute (EPI).

“Prolonged growth in income inequality undermines the basic American belief that hard work should pay off,” says Elizabeth McNichol, co-author of the report and senior fellow at CBPP. “Anyone who contributes to the nation’s economic growth should reap the benefits of that growth. But for decades now, those benefits have been skewed in favor of the wealthiest members of society.”

In the late 2000s (2008-2010, the most recent data available at the time of the analysis), New Jersey had the 11th highest household income disparity between the top 20 percent of families and the bottom 20 percent, with the top fifth earning 8.3 times as much as the bottom fifth (an average of $201,024 versus an average of $24,268). This is higher than the nation as a whole, where the top 20 percent earn 8 times as much as the bottom 20 percent. In the late 1970s, no states had income disparities this high.

“The story of this report is not surprising,” says Gordon MacInnes, president of New Jersey Policy Perspective. “It confirms in irrefutable detail the steady erosion in middle-class prosperity and the increased desperation of low-income workers. New Jersey is not spared despite its standing as the second wealthiest state – hard-working New Jerseyans are falling further behind what they need to raise a family.”

In New Jersey, the ratio between the top and bottom households has increased significantly in the past 30 years. In the period from 1977-1979, the top fifth earned 5.1 times as much as the bottom fifth. By the late 1990s, greater income growth at the top pushed that ratio to 7.5, and by the mid-2000s it had risen to 8.2. Over this time period (from 1977-1979 to 2005-2007), income rose by 101.9 percent for the top fifth of New Jersey households – the fourth highest increase in the nation -– but only by 26.7 percent for the bottom fifth, exacerbating the income inequality that already existed.

Unfortunately, it gets worse. The very wealthy in New Jersey are getting much wealthier while the lowest-income families are barely getting by. The top 5 percent of New Jersey households earned 14.3 times as much as the bottom 20 percent of households in 2005-2007 ¬– more than twice as much as the ratio of 6.9 in 1977-1979.

Middle class families are losing ground too. Incomes in top-earning households are growing faster than incomes in the middle fifth of households, though the gap is not growing as quickly as the one between the top and bottom. The top 20 percent of New Jersey households earned 2.7 times as much as the middle fifth in 2005-2007, up from 2.0 in 1977-1979, but only up slightly from 2.6 in 1998-2000. This 2.7 ratio is close to the nationwide ratio (2.8).

“There appears to be no end in sight in growing inequality in New Jersey – unless state policies are established to address this trend,” says New Jersey Policy Perspective senior policy analyst Raymond Castro. “Reducing inequality is the right thing to do, and it makes economic sense.”

Given persistent income inequality, New Jersey should implement policies that will help address this disparity. Long-range strategies need to be developed, but in the short term, the following are the most effective ways to address these gaps:

• Restore the state Earned Income Tax Credit immediately and fully to 25 percent (it was cut to 20 percent in 2010);

• Increase the state minimum wage from $7.25 to at least $8.25, and tie future increases to cost-of-living increases;

• Move quickly to establish a New Jersey health insurance exchange and expand Medicaid under the Affordable Care Act; and

• Establish a legislative commission or task force to make recommendations on how best to reduce poverty and grow the middle class in New Jersey.

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