Although by some measures New Englanders are doing well economically, the region has experienced the largest jump in household income inequality of all nine census divisions. The authors parse the data.Income distribution - New England

Jason Rudokas

Ross Gittell

English

Research Papers in Economics

0    Summer 007
Changes 
in Income 
Distribution 
in New England
by Ross Gittell and Jason Rudokas
University of New Hampshire
many measures New England is a prosperous region, and its 
residents are doing well economically.1 Three New England 
states—Connecticut, Massachusetts, and New Hampshire— 
rank among the top six of the U.S. states in per capita and household median 
income.2 Vermont and Rhode Island have per capita and median household 
income close to the national average. 
  New England also has four states ranking among the lowest in the percentage 
of the population living in poverty. New Hampshire has the lowest poverty rate 
in the nation, and Connecticut, Vermont, and Massachusetts are among the 
eight U.S. states with the lowest percentage of residents below the poverty line.Communities & Banking    
All  the  New  England  states  have  poverty 
rates below the national average.
But  over  the  last  15  years,  when 
household  income  inequality  increased 
nationwide, New England experienced the 
largest jump in inequality of all the nine 
census  divisions.  It  went  from  relatively 
low income disparity to about the national 
average, with a significant increase in the 
proportion of income concentrated among 
the highest-income households.3
Growing Disparity
The main reasons for the increase in the gap 
in New England were higher than average 
growth at the top of the income distribu-
tion and declines in real household income 
in the lower quintiles that contrasted with 
national household income increases. (See 
Table 1.) The average real income in the top 
5 percent of New England households in-
creased 27 percent, and the real incomes of 
the top 20 percent of households increased 
20  percent.  At  the  same  time,  average 
real incomes of households in the bottom 
fifth  declined  by  5  percent,  and  incomes 
in the second-to-bottom quintile fell by 2   
percent. 
A commonly used summary measure 
of  income  distribution  is  the  Gini 
Coefficient.  The  Gini  is  a  statistic  based 
on the difference between a given income 
distribution and a hypothetical distribution 
in which income is uniformly distributed 
across all households. The Gini is bounded 
between 0 and 1, where 0 represents perfect 
income equality and 1 represents complete 
inequality.  In  1989,  New  England  was 
among the census regions with the smallest 
disparity  in  household  income.  By  2004, 
it was in the middle, just below the U.S. 
average of .464; it experienced the largest 
increase  in  Gini  coefficient  and  income 
disparity of all the census regions, followed 
by  the  Pacific  region.  (See Table  2.) The 
East South Central and West North Central 
regions had the smallest increases. 
All  the  states  in  New  England 
experienced a decline in household earnings 
equality  and  dropped  in  equality  rank 
relative  to  other  states.  Over  the  period 
1989  to  2004,  Connecticut,  Vermont, 
and Massachusetts ranked among the top 
five  states  for  increased  income  disparity. 
(See Table 3 for New England data and for 
the five states with the greatest increase in 
income disparity and the least.) All the New 
England states’ increases in disparity were 
among the top half of states. 
Across  the  nation,  metropolitan 
statistical areas (MSAs) tend to have higher 
income  disparity  than  nonmetropolitan 
areas.  The  increase  in  disparity  also  was 
more  pronounced  in  metro  areas  over 
the last 15 years. New England not only 
had  three  of  the  top  five  states  with  the 
largest increase in disparity, but also six of 
the top 20 metropolitan areas. (See Table 
4.)  In  Connecticut,  Stamford-Norwalk, 
Bridgeport, Waterbury, and Danbury ranked 
among  the  top  10  U.S.  MSAs  showing 
increased  disparity  in  income;  Nashua, 
New  Hampshire,  and  New  Bedford, 
Massachusetts, ranked among the top 20, 
and Boston—New England’s largest metro 
area—ranked in the mid-50s. Providence-
Fall  River  and  Brockton,  Massachusetts, 
saw small increases in equality. 
What Happened? 
The change in household income distribu-
tion  in  the  region  reflects  a  fundamental 
shift in the economy. The shift involves not 
only  productivity  improvements  but  also 
an increased concentration of well-paying 
jobs among those with advanced education   
and training. 
Table 2: Changes in an Income-Inequality Measure (Gini) 
for Each Census Division*
 
  Gini Coefficients 
  (Household Income)  Gini Change
Division  1989    2004  1989-2004
New England  0.417    0.461    0.044
Pacific  0.422    0.462    0.040
Mid-Atlantic  0.441    0.477    0.036
South Atlantic  0.429    0.463    0.034
West South Central  0.451    0.482    0.031
United States  0.433    0.464    0.030
East North Central  0.418    0.443    0.025
Mountain   0.417    0.440    0.022
West North Central  0.417    0.435    0.017
East South Central   0.450    0.464    0.014
*Based on author calculations.
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Table 1: Changes in Average Household Income, New England and the Nation*
New England   
  Average Household Income   Percent Change   
  004   989-004
Lowest-Income Quintile   12,437  -5.1%
Quintile 2  34,291  -2.1%
Quintile 3  57,310  1.7%
Quintile 4  87,043  6.2
Highest-Income Quintile  184,828  19.8%
Top 5 percent   336,819  26.9%
United States   
  Average Household Income   Percent Change
  004   989-004
Lowest-Income Quintile   10,744  4.0%
Quintile 2  28,300  2.6%
Quintile 3  47,326  3.5%
Quintile 4  73,167  6.6%
Highest-Income Quintile  156,795  17.0
Top 5 percent   282,276  20.0%
Source: U.S. Census, Public Use Micro Data, 1990 and 2000. American Community Survey, 2005
*All percentage change figures have been adjusted for inflation.   Fall 007
On the lower and middle end of the 
wage  distribution,  workers  have  felt  the 
decline of unionization and the effects of 
globalization,  with  low  and  moderately 
skilled  production  and  repetitive  service 
functions going offshore to the lowest-cost 
locations. The result has been a reduction in 
employment demand and income-earning 
opportunities  for  those  workers—and 
increased  demand  and  opportunities  for 
highly skilled workers. 
The states with the greatest increase in 
income  inequality  nationally—including 
Connecticut,  Massachusetts,  California, 
and  New  Jersey—tended  to  have  a  high 
concentration of employment in industries 
requiring advanced education and training. 
And  the  states  with  the  least  change  in 
income  inequality  during  the  1990s—
including  Mississippi,  Louisiana,  and 
Oklahoma—had the lowest percentage of 
employment in those industries.
The  changes  were  especially 
pronounced  in  New  England,  which  has 
a  strong  technology  base  and  where  the 
population  overall  is  highly  educated 
and  the  relatively  high  cost  of  business 
operations causes some companies that use 
low-skilled workers to leave. New England 
led the nation in the late 1990s and early 
2000s in the loss, on a percentage basis, of 
manufacturing employment. (See Table 5.) 
Many manufacturers had paid good salaries 
and  provided  a  strong  income  base  for 
middle-income  households  in  the  region. 
Their loss was keenly felt. 
Looking Forward
A key concern for the future is what types of 
employment will replace the manufacturing 
and other well-paying jobs lost to produc-
tivity gains and the lure of lower-cost loca-
tions. 
In  manufacturing,  the  low-skill  jobs 
likely  will  continue  to  be  located  in  the 
lowest-cost  areas,  leaving  New  England 
with  research-based,  product-development 
manufacturing  that  requires  workers 
with  advanced  skills.  At  the  same  time, 
the  offshoring  of  services  will  continue 
to  expand  into  activities  including  data 
processing,  management,  and  sales  and 
customer  support.  The  demand  for  the 
highest-skilled workers in professional and 
Table 3: Measuring Increased Income Disparity*
  Gini  Rank  Gini  Rank  Gini  Rank
  1989  2004   1989-2004 
Connecticut  0.414  27  0.477  3  0.063  1
Vermont  0.390  47  0.439  31  0.049  2
New Jersey  0.416  25  0.459  11  0.044  3
California  0.424  19  0.467  6  0.043  4
Massachusetts  0.420  22  0.462  10  0.042  5
New Hampshire  0.375  50  0.409  48  0.034  13
Rhode Island  0.414  26  0.448  22  0.034  14
Maine  0.399  43  0.426  40  0.027  22
Kentucky  0.448  5  0.455  16  0.008  46
Idaho  0.409  34  0.414  46  0.005  47
Arkansas  0.444  7  0.447  24  0.003  48
Mississippi  0.464  2  0.466  7  0.002  49
Wyoming  0.402  41  0.402  50  0.001  50
Top ranks denote highest inequality and highest increase in inequality
*Ranking among 50 states. Based author calculations.             New England not only 
had three of the top 
five states with the 
largest increase in 
disparity, but also six 
of the top 20 
metropolitan areas.
Table 4: Metro Areas in New England: Greatest to Lowest Increase in 
Income Disparity, 1989 to 2004*
Metropolitian Statistical Area  Gini Change  Rank of Gini Change
    1989-2004   1989-04
Stamford-Norwalk  0.0862  1
Bridgeport  0.0714  3
Waterbury  0.0704  4
Danbury  0.0699  5
Nashua  0.0598  11
New Bedford  0.0550  18
Lowell  0.0524  26
New Haven-Meriden  0.0495  30
Springfield  0.0453  39
Manchester  0.0427  54
Boston  0.0427  56
Lawrence  0.0405  67
Hartford  0.0377  79
Worcester  0.0305  118
Brockton  -0.0061  236
*Ranking is out of 250 U.S. metro areas, which sometimes span two states. It is based on author calcultions.
Table 5: Changes in Manufacturing 
Employment, 1990 to 2004 
Percentage     Change  Rank
  VT  -10%  21
  NH  -19%  29
  MA  -35%  45
  ME  -34%  46
  CT  -34%  47
  NJ  -37%  48
  NY  -39%  49
  RI  -40%  50
  NE  -33%   
  US  -20%
Source: U.S. Bureau of Labor and Statistics.
u This Communities & Banking article is copyrighted by the Federal Reserve Bank of Boston. The views expressed are not necessarily those of  the Bank or the Federal Reserve System. Copies of articles may be 
downloaded without cost at www.bos.frb.org/commdev/c&b/index.htm.Communities & Banking    3
financial-services fields is increasing, along 
with pay levels. 
Fortunately, New England has a stronger 
economic  and  workforce  foundation  to 
address rising income inequality than other 
regions. It does not suffer, as regions in the 
South do, from high overall rates of poverty 
and low educational achievement. The way 
to change the trajectory of New England’s 
current increasing-disparity path is to focus 
economic development efforts on upgrading 
the  education  and  technological  skills  of 
workers in all households. 
That  requires  expanding  access  to 
quality education and training, and linking 
program  participants  to  well-paying 
economic  opportunities.  The  Boston 
Workforce  Development  Coalition’s  pro- 
gram  Career  Ladders,  for  example,  is 
designed to meet both entry-level, incumbent 
workers’ needs (for opportunities to advance 
toward positions with more responsibility, 
skill,  and  compensation)  and  employers’ 
needs (to recruit and retain a skilled, highly 
trained workforce). Expansion of this type of 
program across the region might help more 
workers  create  successful  career  strategies 
to  deal  with  the  new  economic  realities. 
Available child care and affordable housing 
near workplaces are also needed.
Efforts  such  as  these  would  help  all 
New  England  workers  to  succeed  in  the 
transformed  economy. With  business  and 
political  leadership  and  with  significant 
commitment  of  public  and  private 
resources, it is not too late to reverse the 
region’s unwelcome leadership in increased 
income disparity.
Ross  Gittell  is  James  R.  Carter  Professor 
and senior fellow at the University of New 
Hampshire’s  Carsey  Institute  in  Durham, 
New Hampshire. Jason Rudokas is a UNH 
graduate student in economics. 
Endnotes
1 The basis of this article is the authors’ research and 
the issue brief they wrote for the University of New 
Hampshire’s Carsey Institute in spring 2007.  
2The  primary  data  sources  of  gini  coefficients  and 
other income inequality measures were the 1990 and 
2000 U.S. Census and the 2005 American Community 
Survey Public Use Micro Data sets. Poverty and median 
household income were also derived from the Public 
Use Micro Data sets.   
3The  definition  of  household  income  here  includes 
wage and salary income and all other income earned by 
persons over 15 living in the household. The measure 
of income is comprehensive. It includes income from 
business  profits,  interest,  dividends,  and  real  estate 
investment.

Changes in income distribution in New England

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Changes in income distribution in New England

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