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Household incomes vary widely across the U.S., creating a new kind of inequality

Post-pandemic America has seen inflation grow rapidly, along with household income inequality.

According to a recent study published by the Economic Policy Institute (EPI), household incomes have decreased for the average American since 2019 and vary widely by state. (Income is defined as earnings plus Social Security, dividends, interest, etc.)

For example, southern states like Louisiana, Alabama, Mississippi, and Arkansas saw a median income of $55,000 or less in 2021, whereas Maryland topped $90,000 and New Jersey and Massachusetts not too far behind at over $89,000.

According to the EPI data, household earnings grew by 4% since 2019, with the national median earnings for workers 16 and older at $40,260 in 2021. Earnings refer to wages or salaries paid to an employee.

While the EPI data does not account for the four-decade high in inflation seen in 2022, the factors affecting household income in each state remain the same.

"At the state level, you can see how different policies produce different outcomes in workers' earnings and household income," Chandra Childers, senior policy and economic analyst at EPI and author of the study, told Yahoo Finance.

She noted three specific policy factors: unionization rates, minimum wage, and unemployment resources.

A woman picks through a trash can next to the sculpture of the bull near Wall Street, on May 16, 2022 in New York City. (Photo by Andrew Lichtenstein/Corbis via Getty Images)
A woman picks through a trash can next to the sculpture of the bull near Wall Street, on May 16, 2022 in New York City. (Photo by Andrew Lichtenstein/Corbis via Getty Images)

"For example, many of the states with the lowest wages are also anti-union states, and we know that unionization raises workers’ wages and improves working conditions," Childers said. "More directly, states that raise their minimum wages above the federal minimum and that eliminate tipped wages allow you to compare how well workers and families might be doing in those states compared with states that don’t. States also differ in how easy or difficult it is to access supports such as unemployment insurance during an economic downturn."

These disparities have left many workers struggling with income that hasn't kept up with the rising cost of living.

One such worker is Alexys Lamonda, who works as a dog hotel associate at PetSmart and leader at United for Respect, a worker’s rights organization, and is based out of California.

“We’ve raised the alarm all the way to the top about wages that don't allow us to thrive, and now, inflation and corporate price gouging is making a bad situation even worse," Lamonda told Yahoo Finance. "I worry about paying my bills, and I know some of my coworkers struggle to feed their families or to even make enough money in one shift to cover the gas it takes to get to their store and back. A routine grocery run should not cost the equivalent of a day’s work."

The effects of minimum wage

Over 20 states still have a minimum wage at the federal rate of $7.25/hour, which has been in place since 2009. That's been a contributing factor to growing household income inequality, according to Childers.

“States with lower household incomes also tend to be states where minimum wages are lower or they have no state minimum wage law leaving workers at the federal minimum wage,” she said.

For example, Louisiana, Alabama, and Mississippi — all states that in the lowest bracket of median household income — still have the $7.25 federal minimum wage in effect.

So far, 13 states have passed legislation to raise the state minimum wage at some point in 2023. The Raise the Wage Act was introduced in Congress in 2021 to increase the federal minimum wage gradually to $15/hour by 2025 for regular employees and those under 20 years of age, but it has not been officially passed into law yet.

States with low median earnings also had lower household incomes. Median earnings range from $32,242 in Mississippi to $72,457 in the District of Columbia. Southern states had the lowest median earnings and household income.

"One argument that states with lower wages often make is that their states have a lower cost of living, so lower wages aren't an issue," Childers said. "They would argue that comparing Mississippi to DC isn't an apples-to-apples comparison for this reason. But we can compare the earnings and household income to what workers would need to meet their basic needs."

For example, using EPI's Family Budget Calculator, Childers found that a family of four (two parents and two children) in Jackson, Mississippi, would need $76,848 to meet their basic needs of housing, food, health care, transportation, child care, and other necessities. However, the median household income for Mississippi is just $48,716.

And despite workers in most states experiencing earnings growth due to inflation over the past year, household incomes rose by 3% or more in only six states during that time.

Tanya is a data reporter at Yahoo Finance. You can follow her on Twitter.

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