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Tuesday, August 17, 2004 - Page updated at 12:11 A.M.

Gap between rich and poor widening in troubled economy

By Leigh Strope
The Associated Press

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WASHINGTON — Over two decades, the income gap has steadily increased between the richest Americans, who own homes and stocks and got big tax breaks, and those at the middle and bottom of the pay scale, whose paychecks buy less.

The growing disparity is even more pronounced in this recovering economy. Wages are stagnant, and the middle class is shouldering a larger tax burden. Prices for health care, housing, tuition, gas and food have soared.

The wealthiest 20 percent of households in 1973 accounted for 44 percent of total U.S. income, according to the Census Bureau. Their share jumped to 50 percent in 2002, while everyone else's fell. For the bottom fifth, the share dropped from 4.2 percent to 3.5 percent.

Jobs and the economy top the list of voter concerns this election year. President Bush touts a strong economy that is growing, but polls find that Americans have doubts and think jobs are scarce. His Democratic challenger, Sen. John Kerry, is trusted more on the economy.

Democrats talk regularly of "two Americas," divided between the rich and everyone else. That argument has merit, some private economists say.

"For those working in the bottom half of the pay scale, they're under an enormous amount of pressure," said Mark Zandi, chief economist at Economy.com.

New government data also show that Bush's tax cuts have shifted the overall tax burden to the middle class from the wealthiest Americans.

"We're just trying to get ahead," said Debbie Reames, 49, of Raytown, Mo., whose bank job of 24 years was outsourced in February. "But it seems like we climb a few rungs and then we fall back again."

Reames has a new secretarial job, which pays $7,000 a year less than her bank job, and she works catering jobs for extra money. Her husband, Russ, can no longer work after an injury.

One son is finishing college and another will start in the fall.

So the family budget tightened. That meant fewer cable channels, more meals at home, postponed doctor appointments, missed vacations, delayed credit-card payments, all to "keep the wolf away from the door," she said.

The U.S. jobs market is soft, sending wages down. Hiring came to a near standstill last month, with companies adding just 32,000 jobs overall, stunning economists who had expected seven times as many.

More than a million jobs have been added back to the 2.6 million lost since Bush took office, but many pay less and offer fewer benefits, such as health insurance. The new jobs are concentrated in health care, food services and temporary employment firms, all lower-paying sectors. Temp agencies alone account for about a fifth of all new jobs.

Three in five pay below the national median hourly wage of $13.53, said Sung Won Sohn, chief economist for Wells Fargo.

On a weekly basis, the average wage of $525.84 is at the lowest level since October 2001.

The income gap is showing up in booming sales of luxury items. Porsche Cars North America says sales are up 17 percent for the year. Strong sales at Neiman Marcus, Nordstrom and Saks Fifth Avenue overshadow lackluster sales at stores such as Wal-Mart, Sears and Payless Shoes.

Real-estate agent Lance Anderson, 38, of Overland Park, Kan., expects a record sales year, as homeowners upgrade to more expensive homes and commercial clients expand. He recently took his family to Florida for a two-week vacation.

"My clientele, it seems as a whole, has seen positive growth," he said. So his family, including three children, now eat out more often and spend more on clothes. The Andersons recently bought two new cars and expect to buy a larger house in the next few years.

Economists say wages should rise as companies boost hiring. But the growing gap between the haves and have-nots will remain.

Technology has eliminated many U.S. jobs, as has global competition, particularly from low-wage countries such as China. Highly skilled, educated workers in America will thrive as demand rises, Sohn said, while low-skilled jobs remain vulnerable to outsourcing.

"This really has nothing to do with Bush or Kerry, but more to do with the longer-term shift in the structure of the economy," Sohn said.

Copyright © 2004 The Seattle Times Company

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