Price to Get Top Business Climate Rank Could be Economic Inequality

wes blogWhen states like Georgia rate well as places to do business, the same factors used in those rankings also appear to create a climate for economic inequality, according to a new report.

The new analysis finds states that tend to rank well on business climate indexes, like the ones published by Forbes Magazine and the Tax Foundation, also tend to be home to high levels of economic inequality. That’s because low taxes, depressed wages, weak unions and other types of state policies commonly associated with a good business climate are also some of the underlying causes of less equitable growth.

Income inequality in the U.S. skyrocketed over the past quarter century, with the top 1 percent of Americans taking home 54 percent of total income growth from 1979 to 2007. The top 1 percent accounted for 9.9 percent of the nation’s annual income in 1979, compared to 22.5 percent in 2012. Those are levels not seen since the 1920s in years leading up to the Great Depression. In Georgia, the top 1 percent took home 18.7 percent of income in 2007, about double their 9.5 percent share in 1979.

Rising inequality is an undisputable reality, but the causes are hotly debated. Some of the leading contenders are declining federal taxes on the wealthy; de-unionization; stagnant wages for workers at or near the bottom; an economy tilted increasingly toward low-wage jobs and historical obstacles such as race and entrenched poverty. Recent studies also point to “economic segregation,” in which lower-wage workers lack transportation options to access better-paying jobs in the suburbs. Economic segregation is pinpointed in one recent study as perhaps the primary reason why Atlanta is one of the most stratified cities in America.

Much of this can be attributed to national policies or global economic trends. But the new report makes the case that state policies play a role too. The authors reviewed 17 years-worth of “business climate” rankings, typically released by publications and organizations with audiences interested in economic development. High grades usually go to states with low taxes, lax regulations and relatively low-paid, non-union workforces.

They discovered that the lower-tax, low-cost states with supposedly good business climates are much more likely to have high levels of inequality.

That should come as no surprise. States throughout the Southeast and Sunbelt often look good on business competitiveness rankings, despite owning some of the lowest incomes and highest rates of poverty in the country. Georgia recently received CNBC’s “best state for business” moniker despite owning the sixth-highest poverty rate and eleventh-lowest per capita income nationwide.

Why should state policymakers care about rising inequality? Because economic inequality makes it harder for middle class families and workers in low-wage jobs to get ahead. As a smaller and smaller share of people take home more and more of the wealth, less is available for the average person. Wages and incomes stagnate and workers gradually fall behind. They’re less able to save for the future or invest in their children’s education. So as inequality rises, the economic ladder grows harder for families to climb over time.

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