Urban Income Inequality

Cities attract a diverse population. Really, it’s this diversity that allows cities to be the engines of innovations and cultural progress. However, one stark effect of housing different populations in the same area is the gap between those with means and those without. A recent report by the Brookings Institution, summarized in a New York Times article, expands on how this income inequality comes about and where it is trending. The conclusion is that cities with high per-capita income—what the New York Times’ author calls “thriving”—are also the ones with the most pronounced income inequality. Midwestern and Southern cities with less booming economies show lower income inequality.

Why is that?

My first reaction is: Obviously! Income inequality is the gap between the poorest and the richest. (In fact, the Brookings study notes they use a common—but not the only—measure, which is the income ratio of the 95th percentile to the 20th percentile of earners). Big cities, attracting both high-wage industries like finance and technology, and with high costs of living, are far more likely to have big earners than smaller Midwestern cities. And that, in and of itself, is not a bad thing. The economy is not zero-sum game.

However, the Brookings study points out the issues that will plague cities with a large gap: a narrow tax base, and issues making housing affordable for all residents. Perhaps one of the most important for a city’s future, a city with high income inequality will “struggle to maintain mixed-income school environments,” limiting the opportunity of lower-income students. And its these cycles of poverty and limited opportunities that exacerbate inequality issues generation after generation.

In fact, those issues bring up an entirely different consideration. A city with lower income inequality may simply be excluding the poorest families who cannot even afford to reside in the city limits. Without adequate housing options, and decent schools, cities will push many people out to suburbs or exurbs. This will leave only those willing to pay premium rents and private school tuition and obscure the measure of income inequality.

So, is income inequality being driven by the rich getting richer or the poor getting poorer? Like everything in life, it's both.

Compared with the U.S. average, the 50 biggest cities have the bottom 20th percentile of households earning 10% less. That drops their income from $20,968 to $18,137. And cities are typically more expensive to live in than outlying areas, so that reduced income may in fact represent even less purchasing power. The 95th percentile of households earns about $5,000 more in big cities than the U.S. average. However, that’s an increase of only about 2.5%. So both upward trends by the rich and downward trends by the poor contribute to income inequality in big cities. But that 10% drop is much more significant when you start off at only $20k.

For your reference: the three cities with the lowest 20th percentile incomes: Miami at $10,438, Cleveland at $9,432 and Detroit at $9,083. The three cities with the highest 95th percentile incomes: Atlanta at $279,827, D.C. at $290,637 and San Francisco at $353,576. I’m very happy for those doing well, wherever they live. But I am distraught and taken aback that we host cities where one in five households make $10k or less.

So what do we do about income inequality? Can the mayors who have signed on to tackle it accomplish their goals through smart urban planning? The optimist in me certainly hopes so.
Educational opportunities can go a long way toward breaking cycles of poverty. But even if smart, effective and radical policies are pushed through immediately, we’re talking about 15 or 20 years before we see long-term effects.

Housing takes up a much larger share of income than it used to, and in many cities is a force driving people out of city limits. Although I have a lot left to learn about truly effective urban planning—an amateur interest I have—housing would seem like a good place to begin. Although policies like rent control and public housing rarely work as intended, I wouldn’t be surprised to learn that there are new innovations in developing housing that works for both mixed- and low-income populations. Now is a good time to push forward with those ideas.