New data from the Bureau of Economic Analysis (BEA) shows that some of the nation’s most innovative states also experience some of the highest levels of income inequality.
The BEA measures income inequality using the Gini coefficient, which captures the distribution of income within an economy on a scale from 0 to 1. A score of 0 reflects perfect equality, where income is distributed evenly among all citizens. A score of 1 reflects perfect inequality, where a single individual holds all the income. Importantly, a high Gini coefficient does not necessarily indicate a low-income economy; it simply shows how unevenly income is distributed among the population.
Nationally, the United States has a Gini coefficient of 0.46, making it one of the nations with the highest income inequality in the world, greater than most European and Asian countries. But this national figure masks significant regional variation, with several states far above the average. Wyoming, Connecticut, California, and Texas top the list, each exceeding a Gini coefficient of 0.50. At the other end of the spectrum, we find Vermont, Maine, and West Virginia, all with Gini coefficients below 0.40 (see figure 1). Although lower than other U.S. states, a coefficient of 0.40 is still higher than that of countries such as Germany and Japan.
Unsurprisingly, Gini coefficients are highly correlated with per capita income (correlation coefficient of 0.63) and modestly correlated with growth in per capita income (0.13) and state gross domestic product between 2013 and 2023 (0.22). In fact, many of the states with the lowest Gini coefficients are among the poorest relative to national standards, including West Virginia, Maine, New Mexico, and Mississippi.
This suggests that income inequality is a double-edged sword. It tends to be positively associated with higher growth, but by definition, it also widens the gaps in income distribution.
Figure 1: Gini coefficients, 2023
