Large Cities Have Greater Income Inequality

So-called "wealthy Americans" have received a lot of attention lately, with the Obama administration's proposed tax hikes on individuals making over $200,000 annually and households making over $250,000. Only 4 percent of U.S. households make over $200,000 per year, but "wealthy" Americans do earn a large proportion of the country's money annually, with the top 20 percent of U.S. households taking in 50 percent of U.S. income. The United States' income distribution is altogether uneven, but data shows that it can vary significantly from one municipality to another.

[See a slide show of the 10 most equal metropolitan areas.]

According to Census Bureau figures, several cities in the western United States, as well as Pennsylvania, have the most equal distributions of income in the country, while cities in Texas and the southeast, as well as New York and Los Angeles, account for some of the greatest measures of inequality.

Economists quantify inequality by using a measure called the Gini index, which measures inequality of income distribution. While calculating a Gini coefficient is a complicated matter, the resulting figure is a simple indicator of a given place's income equality (or lack thereof). Gini index figures range between zero and one. In a place with total inequality--in which one person earned all of the money--the measure would be 1. In a place where everyone earned the same amount, the Gini index would be zero. The most unequal U.S. metropolitan area (with a population of 300,000 or greater) is Bridgeport, Connecticut, with a Gini index of 0.532. The metro area with the most equitable income distribution is Ogden, Utah, with a Gini measure of 0.386.

[See a slide show of the most unequal metropolitan areas.]

Within a broader international context, the United States is neither high nor low in terms of income equality. According to the CIA World Factbook, which lists Gini indices for 136 countries, Namibia is the world's most economically unequal state, with a Gini coefficient of 0.707 (as of 2003). Sweden is the most equal country, with a coefficient of 0.230 (as of 2005). According to 2009 Census figures, the United States is almost exactly at the midpoint of these two figures, with a Gini measure of 0.469. There are also no U.S. cities that approach either Namibia or Sweden's Gini indices. But U.S. cities' inequality measures do vary significantly above and below the Gini measure for the entire country.

According to 2009 data from the U.S. Census Bureau, these are the 13 U.S. metropolitan areas (pop. 300,000 or greater) with the highest levels of income inequality, along with their median household incomes.

By the same data, below are the 10 most equal metropolitan areas.

Economists are still uncertain about what specific factors might cause greater or lesser inequality, according to Nathaniel Baum-Snow the Stephen Robert assistant professor of economics at Brown University. Baum-Snow does believe, however, that city size is "an important correlate of inequality." He continues, "It seems like there is something about the structure of the economy in large conglomerations that generates sort of a lot of inequality. ... In large conglomerations [of people] you have the sorts of industries that benefit a lot from being exposed to a lot of other economic activity. That's why they locate there." This may help to explain Los Angeles and New York City's places among the 10 most unequal metro areas, as well as why none of the 10 most equal metro areas have populations of over 1 million.

The presence of corporate headquarters--and thus high-paid executives--can also augment the upper end of a city's earning spectrum. The metro area surrounding Charlotte, North Carolina, for example, is home to several corporate headquarters, including those of Bank of America and Lowe's, which might help account for that metro area's high inequality measure.

While a Gini measure alone by no means provides a complete picture of a city's economic standing, it can provide a useful window to an array of factors that determine a city's well-being. Studies have shown high income inequality to correlate to higher rates of violent and property crime, teen birth rates, and death rates. Yet Baum-Snow also cautions about applying causality to these relationships. "If you have more poor people, you have more inequality and more people tend to live in higher-crime neighborhoods and have more social problems," he says.

In short, the specific effects and the causes of income inequality both remain unknown. But if the president's proposed tax rates are implemented, one effect might be increased government revenue from a small segment of the U.S. population--one that is more prominent in some cities than others.

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