Poor Falling Farther Behind Rest Of U.S.: Fed Study

[May 03, 2014]  (Reuters) - The rise in the number of Americans out of work for long periods of time has helped push U.S. income inequality to a 50-year high and has particularly hurt low-income households, according to a study by the Federal Reserve Bank of Minneapolis.

Fed Chair Janet Yellen has called the growing income gap between rich and poor "one of most disturbing trends facing the nation." She has also said she is especially concerned with the "devastating" effects of long-term unemployment.

The share of unemployed U.S. workers unable to find jobs after looking for six months or longer more than doubled to 45.3 percent as a result of the Great Recession.

A government report on Friday showed a decline in the ranks of the long-term unemployed since that peak, but in April they still accounted for more than one-third of all unemployed.

Households in the bottom fifth are suffering the most from the situation, Minneapolis Fed monetary adviser Fabrizio Perri wrote in his analysis of income inequality posted on the bank's website Wednesday.
 

"The increase in inequality at the bottom seems tightly linked to the very large increase in long-term unemployment, which has depressed income for the bottom," Perri said.

Perri's study also showed that taxes and government programs such as unemployment insurance have narrowed some of the inequality gap but have benefited middle-income Americans more than the poor.

Overall, disposable income for all income levels has fallen over the past 15 years, the study found. But while the gap between the top 5 percent of households and that of middle-income household rose sharply in terms of pre-tax income, the gap in post-tax income has been fairly stable, the study found.

By contrast, the gap in disposable income between the bottom 20 percent and middle-income households widened after the recession, "and it is now as high as it has ever been over the past half century," Perri wrote. "This will be an important trend to monitor in coming years."

Minneapolis Fed President Narayana Kocherlakota has been trying to convince his fellow policymakers, including Yellen, of the need to keep rates lower for longer to get the jobless back to work faster.

Although on Wednesday he supported the Fed's decision to continue to dial down the central bank's massive bond-buying stimulus, Kocherlakota has said he still believes the central bank should do more to boost both employment and inflation.

The Minneapolis Fed published Perri's analysis as the lead essay in its 2013 annual report, which also includes a letter form Kocherlakota calling it a "dispassionate analysis" that will contribute to public policymaking.

(Reporting by Ann Saphir; Editing by Steve Orlofsky)

[© 2014 Thomson Reuters. All rights reserved.]

Copyright 2014 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.