One of the most important economic stories of the past couple of decades is the rise of economic inequality in the United States and around the world. As readers of CityLab know, inequality is stark in the “superstar” cities that power advanced economies.
In a new study, economists at the Federal Reserve Bank of New York document this phenomenon in America’s leading cities and knowledge hubs. Jaison Abel (with whom I have previously collaborated) and Richard Deitz track the rise in wage inequality for the country as a whole and across some 200 metropolitan areas over the period 1980 to 2015. Thomas Piketty and Paul Krugman have suggested that 1980 was a tipping point, when advanced economies (and the U.S. in particular) shifted from convergence to greater divergence and inequality across classes and regions.
Wage inequality is not the same as income inequality: It refers to the growing gulf in wages and salaries paid to workers, whereas income inequality is a broader measure of the divide between rich and poor.
The map below, from the New York Fed’s study, charts wage inequality across U.S. metros based on the commonly used 90/10 measure of inequality. This is basically the ratio of the wages of workers in the top 10 percent of the wage distribution (or the 90th percentile) divided by the wages of workers in the bottom 10 percent (or the 10th percentile). In other words, it shows how many times more the top 10 percent of workers earn compared to the bottom 10 percent.
The geography of wage inequality (2015 90/10 ratios by metropolitan area)
Across all metros, the top 10 percent makes about five times as much as the bottom 10 percent. But the 90/10 ratio varies depending on the area. On the map, red dots indicate a ratio of more than 7. These are the most unequal places in the country. Pink dots mean a ratio of 6 to 7, and gray dots, 5 to 6. Blue dots have a ratio of less than 5—these are the least unequal places in America.
Red dots are concentrated in and around New York City and the San Francisco Bay Area, as well as in Houston and oil-producing parts of Texas. Pink dots spread to more places along the East Coast’s Acela Corridor and in the Bay Area, as well as parts of Southern California, Southern Florida, and college towns such as Ann Arbor, Michigan. Conversely, gray and blue dots are sprinkled throughout the interior of the country.
The table below compares wage inequality in 2015 and in 1980. It shows the 15 metros with the highest and lowest levels of wage inequality in both years.
The most and least unequal U.S. metropolitan areas, 2015 and 1980
What’s striking about this table: Not a single superstar city or major tech hub was one of the most unequal metros in 1980. Most of the places on that list are smaller; only two (New Orleans and Orlando) have more than 1 million people. New York City, San Francisco, San Jose, Los Angeles, Houston, and Washington, D.C. were among the most unequal cities in 2015, but all failed to make the 1980 list.
That said, the Fed economists find wage inequality to be somewhat persistent over time. The correlation between the 90/10 ratio in 1980 and 2015 is reasonably strong (0.5). Indeed, six of the bottom 15 metros and three of the top 15 appear on both lists. As the authors write: “This relatively strong positive relationship suggests that places with the highest levels of inequality in 1980 generally tended to also have the highest levels of inequality in 2015.”
The next chart compares how metros lined up on wage inequality in 2015 (along the Y axis) compared to 1980 (across the X axis). The vast majority fall above the fitted line, which indicates that wage inequality increased in almost every metro in the United States. Quite a few metros come well above the fitted line. These places have seen significant increases in wage inequality over the years.
Rising wage inequality among U.S. metropolitan areas, 1980 to 2015
This general rise in wage inequality has been driven by metros like New York City, Los Angeles, Houston, San Francisco, and Washington, D.C. As the study points out, back in 1980, not one of those metros, and not one of the 10 largest metro areas in the country, ranked among the most unequal. By 2015, five of America’s 10 largest metros ranked among the most unequal, and all 10 could be found among the nation’s 50 most unequal places.
City size and wage inequality, 1980 and 2015
The relationship between wage inequality and city size can be seen in the chart above. Here, red dots show metro inequality levels in 2015, and blue dots show metro inequality in 1980. Not only are the red dots higher on the graph than the blue dots—indicating the increase in wage inequality—but the fitted line for the red dots slopes upward, indicating the positive association of wage inequality to city size in 2015. The line for the blue dots, by contrast, is nearly flat, indicating a minimal relationship between inequality and city size back in 1980.
As Abel and Deitz note: “In 1980, there was virtually no relationship between city size and the level of wage inequality; however, by 2015, the correlation increased to 0.4, indicating that larger places now tend to be more unequal.”
The next chart breaks out what has been happening to wage inequality in different types of metros around the country. It provides a baseline for the growth in wages for various types of workers in the U.S. as a whole (the black line on the graph). Wage growth for the highest-paid workers has been roughly triple that for the lowest-paid workers. The wages of the highest-paid workers grew by more than 75 percent, while those of the lowest paid grew by less than 25 percent.
Real wage growth for selected U.S. metropolitan areas by percentile, 1980 to 2015
In New York and San Francisco (the orange and red lines on the graph), wages have grown across the board for all workers, but have grown the most for the best-paid workers. The lowest-wage workers have seen gains of, say, 25 percent, while the highest-paid workers have seen gains four or five times that or higher.
But wage growth has been considerably flatter in Detroit and Youngstown (blue lines). While the highest-paid workers have seen some gains, these are similar to those of much lower-paid workers in superstar cities. The lowest-paid workers in these places have even seen their wages decline.
Again, it’s important to remember that the study is measuring wage inequality, not overall income inequality, which takes into account non-worker income and income from capital, rents, and transfers. I have been interested in wage inequality and its geography since the early 2000s, when I found that it was highest in leading creative-class cities, and it’s something I picked up on again in my book The New Urban Crisis. According to my own research and other studies, superstar cities do not dominate quite so much on the broader measure of income inequality. Atlanta, New Orleans, Philadelphia, and Miami top the list of large metros on this measure, which is more closely associated with racially concentrated poverty.
The connection between wage inequality and superstar cities jibes with past findings. A 2011 study by my University of Toronto colleague Nate Baum-Snow, and Ronni Pavan found that metro size accounted for 25 to 35 percent of the increase in economic inequality across U.S. metros from 1979 to 2007. My own analysis of 90/10 wage inequality, published in CityLab in 2015, identified San Jose, Washington, D.C., San Francisco, New York, Houston, Boston, and Los Angeles as the nation’s most unequal metros, and found wage inequality to be closely associated with the size and density of metros as well as their concentrations of high-tech industry, the creative class, and college grads. As I wrote back then: “Wage inequality is not just a bug of our new, clustered urban geography—it is a fundamental feature of it.”
Still, it’s a mistake to blame cities for rising wage inequality. A large part of the story is deep structural changes in the national and global economies, as advanced economies have shifted from an older industrial basis to a newer one: knowledge. Deindustrialization and globalization have eliminated huge numbers of blue-collar manufacturing jobs, splitting the labor market between a small number of well-paid knowledge jobs and a much larger number of lower-paid service jobs.
Also, inequality within cities is further reinforced by the huge spike in national inequality. As Robert Manduca has shown, the top 1 percent and top 10 percent of the richest Americans have taken home the lion’s share of economic gains over the past couple of decades, and these groups are disproportionately concentrated in superstar cities.
This pattern is not unique to the United States. Superstar cities all over the advanced world, from London and Paris to cities in the social-democratic nations of Northern Europe, like Stockholm, Amsterdam, and Copenhagen, have seen a similar spike in urban inequality. That suggests that it’s driven by broad changes in the structure of advanced economies and in the disproportionate gains that have gone to the top earners and very richest people.
Over the past decade or so, the progressive mayors of superstar cities have tried many local strategies to mitigate the problem, including higher minimum wages, broader social safety nets, and affordable-housing construction. None of it has made a dent. The surge in urban inequality is the product of forces that are bigger than cities, yet primarily manifest there. Taming these forces will require a broader, more robust combination of national and local actors.