WASHINGTON – Maryland has seen a “dramatic” increase in the income gap between its richest and poorest families over the past two decades, despite the relative prosperity of the period.
A report by the Maryland Budget and Tax Policy Institute said that while the average annual income for the richest 20 percent of Maryland families grew by $42,780 from the late 1970s to the late 1990s, income growth for the poorest 20 percent of families was only $350 during the same period. In both cases, the figures were reached after accounting for inflation.
“It’s clear that while Maryland, which like the nation has recorded a huge surplus, there is no uniformity in its distribution,” said Steve Hill, director of the non-profit, non-partisan institute. “This is an alarming trend and it clearly shows that not everyone is sharing in the prosperity.”
Geert Ridder, a Johns Hopkins University economics professor, attributes the “decrease or the stagnation of income levels” for the poorest state families to two factors: A “striking shift” from manufacturing to a service-based economy and an increasing tendency to restrict lucrative stock options to the highest earners.
“In Maryland, like in other states, we have seen a steady replacement of manufacturing jobs by the lesser-paid service-industry jobs,” said Ridder. “This has had drastic effects on the labor market, where the better-paid manufacturing jobs that require highly qualified personnel are replaced by service-industry jobs that require less qualifications.”
Ridder said the “steady influx of…service-based jobs has restricted the growth of the poorer 20 percent of the society.”
The Maryland Department of Labor, Licensing and Regulation said that while the state added 664,429 new jobs from 1979 to 1999, the number of workers in the manufacturing sector fell by 71,138. Service-industry jobs grew by 426,210 in the same period.
The state had 765,923 service jobs in 1999, almost one-third of the total 2.3 million workers in the state, while the 176,852 manufacturing jobs accounted for just over 7.5 percent of the total.
At the same time, said Ridder, there has been a “drastic increase” in the average income of the richest 20 percent, as companies restrict stock options to those in high positions and limit others to traditional sources of compensation “like wages and profit sharing.”
“Stock options, which are an enormous source for income, is now confined mainly to the rich. And with the kind of growth the stock markets have witnessed…it’s pretty clear as to why the richest 20 percent have got much richer,” Ridder said.
David Brunori, contributing editor to State Tax Notes magazine, attributed the widening income disparities to the “failure of the state and the nation” to keep pace with economic shifts that “have erased the manufacturing jobs and replaced them with jobs in the high-tech, biotech and service industry.”
“The problem here is that the poorest 20 percent of the society is not qualified enough to occupy those jobs offered by the high-paying technology sector,” he said. “They thus flock to the service industry where the pay is far less when compared to the hot technology jobs in the market.”
Brunori, who is also a professor of state and local taxes at the George Washington University Law School, suggested that Maryland should take the initiative and adopt public services that cater to the needs of the technology sector. Enhancing computer literacy, he said, should be a fundamental step in that direction.
“The state has to set up a ‘business-friendly’ environment and educate the public so that they can take on the hot jobs that are in the market,” he said. “Maryland has made positive inroads into the bio-tech sector but is lagging behind, especially compared to states like Virginia, in attracting high-tech companies.”
Officials at the Maryland Department of Business and Economic Development argue that the state has been successful in attracting high-tech companies and that it has adopted many initiatives to get those companies the workers they need.
“People get distracted when comparing Maryland to Virginia in terms of the number of high-tech companies in the two states,” said Vernon Thompson, assistant secretary for regional development at DBED. “Virginia may have companies that have bigger names, but Maryland has an equal amount of companies investing here.”
Thompson added that the state has allotted “millions of dollars” toward such efforts.
“One such program, the Maryland Applied Information Technology Initiatives, funds state educational institutions with $5 million annually to expand their capacity to serve IT (information technology) students,” he said. “We also provide scholarships and allocate funds for the advancement of technology centers in the state.”
But Hill said the state should first adopt programs that directly benefit lower-income people.
“To start with, the state should provide health insurance to the poorer sections of the society,” he said. “That will be a real relief on the financial burden on these people. There is a lot that the state can do in this regard.”
-30- CNS 11-22-00