Some U.S. cities are more unequal than others. That much is pretty obvious. What is interesting, however, is that it is the country’s most dynamic, economically vibrant big cities that are more unequal than other big cities. Rather than worry about inequality within big cities, we really should be focusing on making the dynamic, economically vibrant ones much bigger.
Annie Lowrey of the New York Times reports on a new Brookings Institution report (“All Cities Are Not Created Unequal“) by Alan Berube:
The country’s big cities tend to have higher income inequality than the country as a whole. For instance, in the 50 biggest American cities in 2012, a high-income household — which the study measured at the 95th earnings percentile, putting it just into the top 5 percent — earned about 11 times as much as a low-income household, at the 20th percentile. Nationally, that ratio was 9 to 1.
Some places tend to have much more intense income inequality than others. A high-income family might earn 15 or 16 times what a low-income family earns in San Francisco or Boston, compared with earnings multiples of six or eight in places like Virginia Beach or Wichita.
Low-inequality cities, the study found, tend to be located in the South and the Midwest. They also tend to be geographically large, encompassing neighborhoods that in many other cities would be considered suburbs. Generally, the average for the top income group in such cities tends to be lower than it is in high-inequality cities — $150,000 to $200,000 a year, compared with $354,000 in San Francisco and $280,000 in Atlanta.
The driving force behind spiraling inequality at a national level is the rich getting richer. But in many cases, the Brookings numbers indicated, poverty is as important a factor at the local level. In Miami, for instance, a household in the bottom 20th income percentile earned just $10,000 a year in 2012.
Patrick Brennan is going to address Berube’s findings in greater detail. But I thought I’d make note of one small thing. Berube identifies the ten most unequal U.S. cities of the fifty largest cities (Atlanta, San Francisco, Miami, Boston, Washington, New York, Oakland, Chicago, Los Angeles, and Baltimore) and the least unequal (Oklahoma City, Raleigh, Omaha, Fort Worth, Colorado Springs, Wichita, Las Vegas, Mesa, Arlington (TX), Virginia Beach). Now consider this map of the United States which has been making the rounds, first created by atrubetskoy on Reddit. It is designed to illustrate where U.S. GDP is generated — the orange areas and the blue areas both generate half of U.S. GDP.
The U.S. Conference of Mayors published data comparing the economies of large U.S. metropolitan areas to countries. Berube’s data concerns cities proper, so the data doesn’t overlap. But it is interesting nonetheless: Atlanta has a slightly larger economy than Singapore and Miami has a slightly smaller economy; Philadelphia, the Bay Area (encompassing San Francisco and Oakland, among other cities), and Boston squeezed in-between Thailand and Denmark; Houston, Washington, D.C., and Dallas-Fort Worth are between Taiwan and Austria; Chicago is between Switzerland and Sweden; Baltimore is a fair bit smaller than New Zealand; New York is a bit bigger than Spain and has some catching up to do if it wants to reach the size of Australia; and the Los Angeles economy is just a hair smaller than that of the Netherlands.
“So what’s the point of this exercise, Reihan? I’m waiting for some tendentious observation.” And you’re in luck. Carving out all of America’s big unequal cities to create their own sovereign republic (“Inequalistan”) would leave behind a far more equal, and far poorer, United States. It’s not obvious that this would be cause for celebration.
One thesis, which I find convincing, is that the reason rich people can earn so much in these large metropolitan areas is that skilled workers and less-skilled workers are complements; highly productive, in-demand workers can work longer hours when they can outsource household tasks to other people. Working longer hours is extremely important, because in professions in which you meet with clients and accumulate knowledge about them, or in which firms are competing and the first firm to achieve some breakthrough can achieve windfall gains and it’s really hard for one worker to substitute for another, the returns to working longer hours are nonlinear, i.e., working twice as many hours can yield more than twice as much pay. Household tasks can be a huge and expensive distraction, which is why it pays to get other people to take them on.
These jobs in food preparation, childcare, etc., are labor-intensive, and they come in many forms (high-end services which place a heavy of emphasis on quality of service rather than price, low-end services who do the opposite, and everything in between). So cities that do a good job of matching workers don’t necessarily have the skills you need to do knowledge-intensive work but who are conscientious and capable of working demanding service jobs with workers who need to outsource to maximize their earning potential can be understood as win-win cities. The income gains that accrue to the outsourcers are bigger than those that accrue to those who take on the outsourced work in dollar terms. But the outsourcers have more options — they can work less and still lead decent lives, while the outsourcees might not have such attractive choices available to them. They might need to study full-time to enter a new profession, a choice that involves at least some opportunity cost. Or they might need to live in a place with a less lucrative customer base, i.e., a more economically equal place with fewer ultra-affluent households, where remunerative service work is harder to come by.
There is another dimension to America’s unequal cities, which is that the presence of ultra-affluent households facilitates the maintenance and expansion of relatively generous local welfare states. In fiscal year 2012, New York state spent $53,305,797,436 on Medicaid (including federal funds). Florida, which has roughly the same population (19.3M) as New York state (19.5M), spent $17,906,910,735 and Texas (26M) spent $28,285,538,853. Leaving aside the question of whether New York state’s approach to Medicaid is wise (and whether it has been driven by problematic political imperatives), it’s not implausible that the fact that New York city’s rich have been getting richer (with notable interruptions) has made it easier for New York city and New York state to finance interventions that have improved the relative position of low-income New Yorkers, and indeed that have made life easier for New Yorkers who are unable or (in some rare cases) unwilling to work in the formal sector. The biggest problem facing low-income New Yorkers is not so much the presence of high-income New Yorkers, but rather severe constraints on housing supply that have driven rent increases as high-earners displace low-earners from desirable neighborhoods.
So while I don’t begrudge our friends on the left for wanting to draw attention to inequality, I would suggest a different approach: let’s keep in mind the extent to which the presence of large numbers of rich people is a big part of why America’s most populous cities are engines of economic opportunity for low-income, less-skilled people — much more so than moribund rural areas — and let’s devote more time and energy to making these cities more inclusive and attractive by allowing for more housing development. Stephen Smith, Matt Yglesias, Ryan Avent, and Josh Barro are some the thinkers who’ve been beating this drum, and the good news is that their ranks are growing.