Where the rich get richer, the poor often don’t

Our latest report on income inequality in cities finds that the gap between the rich and poor across the 50 largest cities continued to grow, albeit slightly, from 2012 to 2013. In general, both high- and low-income households made gains, but income growth at the top end outpaced that at the bottom end.

However, the cities in which either group made progress were, for the most part, different.

This was a little surprising. We thought that the cities in which wealthy households posted big gains might also see incomes improve the most for poorer households. Top-earning households would use their additional discretionary income to purchase more local goods and services that, in turn, employed lower-income workers—restaurants, landscapers, house cleaners, child care providers, etc.

That’s one logical implication from Enrico Moretti’s book, The New Geography of Jobs, which my colleague Mark Muro wrote about here a couple years back. Moretti finds that the most innovative, tech-focused regional economies actually generate more jobs and higher incomes for less-skilled workers than other regions. So at least in terms of employment and earnings opportunities, it’s better to be a poorer household in Silicon Valley than in, say, Milwaukee.

This year’s data, though, throw a little cold water on that theory. Of the 50 cities we examined, 12 saw incomes rise by a significant margin at the top, and 11 saw incomes rise by a significant margin at the bottom. But only two cities made both lists (Jacksonville and Houston). In New York, Dallas, Seattle, and San Jose, Calif., big gains among high-income households were accompanied by almost no change among low-income households. At the same time, poorer residents of Kansas City, Mo., Nashville, Tenn., Oklahoma City, and—yes—Milwaukee posted gains absent much movement near the top.

A slightly longer view, from before the Great Recession up to 2013, tells a similar story.  On average, low-income households lost ground across the board, regardless of how high-income households fared. Their losses were slightly less steep in cities where high-income households weathered the recession best, and steeper in cities where the wealthy got hit hardest. For the most part, however, incomes at the top and bottom of the distribution in these cities moved somewhat independently.

Growth in Top Incomes Isnt Trickling Down in Cities blog2

These small data points don’t refute the underlying theory. Our data are just for cities, not the wider metro areas across which these economic dynamics truly operate. And there are examples such as San Francisco, where very dramatic (albeit not quite statistically significant) income gains for top earners in 2013 coincided with real gains at the bottom, too. Of course, we don’t actually know whether the gains at the bottom reflected actual improvement for San Francisco’s poorer households, or if instead poorer households were simply displaced from the city due to rising housing costs (it’s probably some of both).

Regardless, the fact that where the rich are getting richer, the poor are often not, presents a challenge for local policymakers aiming to boost social mobility for their lower-income workers and families. In the short run, at least, rising prosperity at the top in a city won’t reliably trickle down to the bottom.