Poorer states close gap with rich

New census data show that bottom-tier states grew rapidly in 1990s, while those in the top 10 struggled.

The 1990s were a boom for high-tech, high-skilled economies and a bust for those with low-tech industries and low-skilled workers, right?

Wrong. The highest-income states back in 1989 lost ground during the '90s and, in many cases, their poverty rates rose. Low-tech, low-education states, meanwhile, raised household income and cut poverty, often dramatically. In the end, the 1990s left this unexpected legacy: The gap between the richest and poorest states is now narrower, as measured by new census data on household income.

The decade also calls into question easy assumptions about economic growth. High-tech, highly educated places don't always beat out low-tech, less-educated ones. Sometimes, the most advanced have trouble growing at all. "When you're coming from the bottom it doesn't take much to do better," says Stan McMillen of the Connecticut Center for Economic Analysis at the University of Connecticut in Storrs. "But when you're at the top, it's that much harder to make progress."

Such lessons will prove key as states plan economic growth for the 21st century.

Consider Connecticut and Mississippi, two states that stand at polar opposites of America's economic spectrum. The former is urban and high-tech; the latter is rural and manufacturing-laden. One-third of Connecticut adults have graduated from college; less than a fifth of Mississippi's have. In 1989, Connecticut boasted the nation's highest median household income ($56,260 in year 2000 dollars). Mississippi had the lowest ($27,153).

But something strange happened during the 1990s. Connecticut's median income actually slipped 5.6 percent, the biggest drop of any state, to $53,108. Mississippi, meanwhile, saw its household median rise 17.7 percent, the biggest rise of any state, to $31,955. (All income figures are adjusted for inflation.)

As a result, by 2000 Connecticut had fallen to No. 2 in median household income while Mississippi jumped two spots to No. 48. Other states at both extremes experienced similar trends. In 1989, the gap between the highest median-income state and the lowest median-income state stood at 52 percent. By 2000, the gap between the new top state (New Jersey) and the new bottom one (West Virginia) had narrowed to 47 percent.

These numbers represent estimates, cautions Edward Welniak, chief of the income branch for the US Census Bureau. And they may understate actual income growth during the 1990s. That's because the first set of numbers comes from the 1990 census, while the second set stems from the Census Bureau's new American Community Survey, which was collected slightly differently and uses 2000 and 1999 data.

Nevertheless, the numbers look too consistent to ignore. For example: of the 10 states with the lowest median household income in 1989, half posted among the 10 best income-growth rates during the 1990s. Among them were perennial bottom-of-the-chart states such as Arkansas (up 14.7 percent), North Dakota (10.1 percent), and Kentucky (8.1 percent). South Dakota, fifth-lowest in the nation in 1989, grew an impressive 16 percent and moved out of the bottom 10.

In contrast, seven of 1989's top 10 states saw median household income fall. With a 3.7 percent decline, California fell out of the top 10 altogether.

Family poverty tells a similar story. All of the bottom 10 states saw their poverty rates fall more than the national average. Louisiana, the fourth-lowest-income state in 1989, saw its share of families under the poverty line drop by 3.2 percentage points - some 10 times the overall US decline of 0.3 percentage points. Mississippi posted a nation-leading drop of 5.9 percentage points.

Economists credit the telecommunications and healthcare industries, as well as the gambling industry, for the state's advance. Connecticut, meanwhile, is still digging out of a nasty 1991 recession that battered its manufacturing base and shrunk its prominent banking and insurance industries.

Does this mean high-income states are destined to stagnate while only poor, casino-laden states prosper? Hardly. Other states - notably Colorado and Minnesota - also delivered eye-popping income growth and cut their family poverty rates during the 1990s. Both moved into the top 10 for 2000.

Also, the bottom 10 states still have a long way to climb. Mississippi still has more than 14 percent of its families below the poverty line; Connecticut, less than 6 percent. The big question is: Will the trends from the '90s continue?

The nation's high-tech slump may slow Connecticut's recovery. On the other hand, the state has restructured and expanded its high-tech base into biotechnology and photonics (light-based products). "At the end of the decade, the Connecticut economy is stronger, more diverse," says Mr. McMillen. "The productivity in Connecticut has been growing rapidly."

Mississippi, meanwhile, shouldn't expect its '90s-style growth to continue at such a high pace, warns Marianne Hill, senior economist with the Center for Policy Research in Jackson. Worryingly, its workers' productivity isn't keeping pace with the rest of country.

On the other hand, Nissan is building a $930 million auto plant outside Jackson, which will employ 4,000 people at wages of twice the current county average. The state has launched an economic-development program aimed at luring in high-wage jobs. And the Mississippi Development Authority is making a major tourism push. "We're going to continue this trend where Mississippi is no longer considered last," promises the agency's spokeswoman, Sherry Vance.

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