Rich-poor gap widens in United States

  • Article by: PETER ROBISON , Bloomberg News
  • Updated: October 7, 2012 - 12:09 PM

The recovery isn't reflected in most Americans' paychecks.

Anita Reyes, a casino dealer from Minneapolis, is feeling the squeeze of frozen wages. Her house went into foreclosure a year ago.

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Since 2009, Anita Reyes' wages have been as frozen as Lake Minnetonka in January.

While the U.S. economy was recovering from the Great Recession, Reyes, 52, a casino dealer from Minneapolis, was dining on $1.67 cans of soup and searching for a way to keep her house, which was foreclosed on last October.

"I went backwards," Reyes said. "Two years ago, three years ago, I didn't know I'd be looking at being homeless."

Stephen Hemsley's salary has been frozen too. His income hasn't.

The chief executive of Minnetonka-based health insurer UnitedHealth Group Inc. earned $1.3 million in salary every year since 2007. Still, as the economic recovery took hold from 2009 to 2011, Hemsley, 60, exercised stock options worth more than $170 million and made at least $51 million from share sales, making him the object of an "Occupy Lake Minnetonka" protest on the ice outside his lakeside home each winter.

The divergent fortunes of Reyes and Hemsley show two sides of the U.S. recovery. The 1.2 million households whose incomes put them in the top 1 percent of the U.S. saw their earnings increase 5.5 percent last year, according to estimates released last month by the Census Bureau. Earnings fell 1.7 percent for the 96 million households in the bottom 80 percent -- those that made less than $101,583.

The recovery that officially began in mid-2009 hasn't arrived in most Americans' paychecks. In 2010, the top 1 percent of U.S. families captured as much as 93 percent of the nation's income growth, according to a March paper by Emmanuel Saez, a University of California, Berkeley, economist who studied Internal Revenue Service data.

The earnings gap between rich and poor Americans was the widest in more than four decades in 2011, census data show. The notion that each generation does better than the last -- one aspect of the American Dream -- has been challenged by evidence that average family incomes fell last decade for the first time since World War II.

In this recovery it's proved better to own stock than a house. For stockholders like Hemsley, the value of all outstanding shares has soared $6 trillion to $17 trillion since June 2009, the recession's end. Even after a recent rebound, the value of owner-occupied housing, the chief asset of most middle-income families, has dropped $41 billion in the same period, part of a $5.8 trillion loss in home values since 2006.

"Income inequality of the scale we have today is destroying our democracy," retired American Airlines CEO Bob Crandall said in an interview. Crandall, 76, says he became so frustrated at what he sees as selfishness among his peers that he started writing a blog on his Lenovo laptop.

From 1979 to 2007, about $1.1 trillion in annual income shifted to the top 1 percent of Americans -- more than the entire earnings of the bottom 40 percent, according to Alan Krueger, chairman of President Obama's Council of Economic Advisers. If income were distributed as it was in 1979, there might be $440 billion in additional spending each year -- a 5 percent boost to consumption, he said in January.

Frozen pay, cold protest

"Health Care, Not Wealth Care," read a banner that 20 protesters unfurled next to a temporary shack on frozen Lake Minnetonka in January. The group has hiked across the lake each winter since 2009 to get within shouting distance of Stephen Hemsley's 7,800 square-foot home, which is assessed at $7.9 million.

"It's another example of a two-tiered society," said organizer Joel Albers.

Hemsley owed his options to grants made from 1999 to 2002, when he was president of UnitedHealth, which is the largest U.S. health insurer. He has retained a "significant portion" of the shares he acquired through options exercises and holds stock equal to 118 times his base salary, which "fosters a long-term outlook" and aligns his interests with shareholders', said UnitedHealth spokesman Tyler Mason.

Falling behind

Wage-earner Reyes, the youngest of eight siblings of Ojibwe descent, bought her 700-square-foot Craftsman house not far from Minnehaha Falls in 1995 for $52,900. "It's only as big as a checkerboard square, but I like it," she said.

After two decades of dealing blackjack, Mississippi stud and Ultimate Texas Hold 'em, Reyes, 52, makes $14 to $17 an hour, mostly from tips.

Last year, after her hours were cut, Reyes fell behind on her mortgage and the bank foreclosed. Several neighbors put up "Stop Foreclosures" yard signs.

"We're all one payment away from losing our house," said neighbor Julie Johnson.

On a sunny August day in Wayzata 20 miles away, BMWs and other luxury cars prowled for parking on the main street as speedboats tied up on the lake. The CEO of Target Corp., heirs of the Dayton's department store chain and McGuire, who's bought several plots, all live around the lake.

Reyes, who rejected an offer from the bank to lease the home she used to own for $600 a month, got an eviction notice in the mai last week.

She jumps when a car door slams, she said, fearing it's a sheriff.

Bloomberg News reporters Frank Bass, Bob Ivry and Sharon L. Lynch contributed to this report.

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