The sun sets over the skyline of New York after a rain storm, June 23, 2015. REUTERS/Lucas Jackson  - RTX1HSZ8
Report

Some cities are still more unequal than others—an update

Alan Berube and Natalie Holmes

More than five years after the end of the Great Recession, and three years since the Occupy movement took on Wall Street, high and growing levels of income inequality continue to animate debates on politics and public policy. Inequality provided the economic backdrop for President Obama’s 2015 State of the Union address, the recent report of a transatlantic Commission on Inclusive Prosperity, and one of the most talked-about books of 2014, French economist Thomas Piketty’sCapital in the Twenty-First Century.

Although each of those examples focuses on the actions that national governments should take to address inequality, continued gridlock in Washington has inspired growing interest and activity at the sub-national level around ameliorating inequality and promoting social mobility. In 2014 alone, 14 states and the District of Columbia enacted increases in their minimum wagesMany cities adopted or considered similar measures, most notably Seattle, which is raising its minimum wage to $15/hour by 2017. Some observers argue that cities themselves are better positioned to enhance social mobility for low-income residents than the federal government.

Authors

This report updates a 2014 analysis that looked at levels of income inequality in the 50 largest U.S. cities, and examines in particular trends between 2012 and 2013, the most recent data available from the U.S. Census Bureau. Like the earlier analysis, it focuses on incomes among households near the top of the distribution—those earning more than 95 percent of all other households—and households closer to the bottom of the distribution—those earning more than only 20 percent of all other households. It then measures the gap between the two, or the “95/20 ratio.” All dollar amounts are adjusted for inflation to 2013 levels.

Large cities remain more unequal by income than the nation overall

In 2013, big cities continued to exhibit greater income disparities between rich and poor households than the rest of the country (Figure 1). Across the 50 largest cities, households in the 95th percentile of income earned 11.6 times as much as households at the 20th percentile, a considerably wider margin than the national average ratio of 9.3. This difference reflects the fact that in big cities the rich have higher incomes, and the poor lower incomes, than their counterparts nationally. From 2012 to 2013, the inequality ratio widened in both cities and the nation overall, as incomes at the top grew somewhat faster than incomes at the bottom. Notably, incomes grew faster for both the rich and poor in cities than they did elsewhere.

In 12 of the 50 largest cities, the rich became significantly richer between 2012 and 2013

Several cities witnessed dramatic growth in the incomes of their highest-earning households between 2012 and 2013 (Table 1). In 12 cities, incomes for the 95th percentile of households in 2013 exceeded those in 2012 by a statistically significant margin. Seattle topped the list with 15 percent growth in income among those households, equivalent to a $36,000 increase. The three cities with the next-largest increases at the 95th percentile—Cleveland, Jacksonville, Fla., and Louisville, Ky.—are not generally regarded as wealthy cities, and indeed the 14 percent increases they registered near the top translated to lower increases in absolute dollar terms ($21,000 in Jacksonville and Louisville; $14,000 in Cleveland). Incomes for wealthy households also jumped by double-digit rates in San Jose, Calif., Dallas, and Portland, Ore.

In only one of the 50 largest cities—Albuquerque, N.M.—did 95th-percentile incomes decline from 2012 to 2013. The Albuquerque region has struggled economically in recent years, and weak growth there seems to have affected households near the top.

While not statistically significant, the estimated rate of income growth for rich households in San Francisco topped 18 percent, equivalent to a $66,000 bump. The Census Bureau does not provide enough data on high-income earners in San Francisco to conclusively demonstrate that increase, but the trend is consistent with anecdotal evidence on growing concentrations of very-high-paying jobs and households in that city.

San Francisco also stands apart from the pack in just how rich its richest households were in 2013 (Figure 2). They earned at least $423,000, more than $100,000 clear of their counterparts in San Jose. Wealthy households in Washington, D.C. were the only other group whose incomes topped $300,000 in 2013. These cities contrasted sharply with Detroit, where incomes at the 95th percentile reached only $108,000. And despite a significant increase from 2012 to 2013, incomes among Cleveland’s top-earning households cleared just $116,000 in 2013.

City Inequality 2013 Figures Tables and Appendix (Edited 3-3-201

Most high-income households in cities have recovered the ground they lost during the recession. By 2013, in only eight of the 50 largest cities were incomes for top-earning households significantly below their 2007, pre-recession levels. Las Vegas registered the largest dip, at 19 percent. In four cities—Cleveland, Portland, San Francisco, and San Jose—top incomes in 2013 significantly exceeded their 2007 levels.

In 11 of the 50 largest cities, low-income households made significant gains from 2012 to 2013

About one in five of the nation’s largest cities posted significant income gains at the lower end of the distribution between 2012 and 2013 (Table 1). Jacksonville, San Francisco, Nashville, Tenn., Oklahoma City, and Kansas City, Mo. all posted double-digit increases in 20th-percentile incomes. In both Jacksonville and San Francisco, those translated to increases of at least $3,000 for households at that level. No cities experienced statistically significant income declines among lower-income households from 2012 to 2013.

Notably, cities where incomes grew at the top overlapped very little with those where incomes grew at the bottom. Of the 11 cities where 20th-percentile incomes increased by a statistically significant margin from 2012 to 2013, just two (Jacksonville and Houston) also posted gains at the 95th percentile. It thus seemed that households near the bottom of the income ladder did not benefit from the significant gains accruing to high-income households in many cities. By the same token, low-income households made progress in several cities—particularly Southern and Western cities like Nashville, Oklahoma City, Colorado Springs, Colo., and Austin, Texas—despite little movement at the top.

San Francisco again proved an exceptional story. The 20th-percentile income in that city rose from $21,500 in 2012 to $24,800 in 2013, a 15 percent jump that registered highest among the 50 cities. The Census Bureau data do not reveal, however, how much those gains accrued to low-income households who remained in San Francisco (or any other city, for that matter) versus how much they reflect changes in who lived in the city across those two years. Incomes near the bottom could have increased due in part to very-low-income households leaving the city, perhaps because of affordability challenges. The fact that Oakland, Calif. also saw significant income growth at the lower end may signal that a strong Bay Area economy lifted all boats; or low-income households in Oakland may have also experienced affordability pressures similar to their counterparts across the Bay.

Despite positive trends in some cities from 2012 to 2013, lower-income households in the majority (31) of the 50 largest cities had lower incomes in 2013 than they did in 2007. That contrasts sharply with the small number of cities (8) in which incomes declined at the top from 2007 to 2013. Incomes at the 20th percentile were down more than one-quarter from their 2007 levels in Sacramento, Calif., Indianapolis, and Las Vegas, reflecting the lingering impacts a severe recession had on lower-income households in those cities and regions.

Income inequality rose in two cities and fell in four others from 2012 to 2013

How incomes change at the top and bottom of the distribution in a city dictates how its level of inequality, measured by the 95/20 income ratio, changes as well.

Between 2012 and 2013, the inequality ratio rose by a statistically significant margin in just two cities (Table 2). In Cleveland and Dallas, incomes for the rich rose significantly while they stagnated for low-income households. At the other end of the spectrum, four cities posted significant declines in their inequality ratios, in most cases because low incomes rose while those at the top held steady. Kansas City and Nashville registered the largest inequality decreases. The relatively small sample of households in the Census Bureau data introduced too much uncertainty about changes in other cities to definitively conclude that inequality had increased or decreased there. Nevertheless, the fact that estimated inequality ratios rose in 42 cities, and fell in only eight, suggests that the predominant trend in these big cities is toward rising inequality..

Given these dynamics, the map of the most unequal cities in 2013 changed little from the previous year (Figure 3). Atlanta continued to lead the list, with top household incomes in that city nearly 20 times those near the bottom (Table 3). San Francisco still ranked second, with a 95/20 ratio of roughly 17. Boston moved up to third place at 15, while Miami dropped to fourth place thanks to modest income growth among its poorer households. Washington, D.C., New York, Chicago, and Los Angeles all remained in the top 10, while Dallas and Minneapolis moved in as Oakland and Baltimore moved out. Indeed, eight of the top 10 cities for inequality in 2013 also ranked in the top 10 in 2007.

figure3map

The cities with the most equal distribution of incomes also remained largely the same from 2012 to 2013. All are geographically large cities that incorporate large swaths of suburban territory within their borders, and most are in the South and West. In addition, these cities are not home to the concentrations of technology and financial/professional services industries that pay the very highest salaries and that characterize many of the cities at the top of the inequality rankings.

Trends through 2013 left many cities with higher levels of inequality than they exhibited in 2007, prior to the recession. Twenty-one (21) of the 50 cities had a higher 95/20 income ratio in 2013 than in 2007. Atlanta and San Francisco, the cities with the highest inequality ratios in 2013, exhibited the largest increases in their ratios over that time. Interestingly, Cleveland’s increase followed closely behind, driven by the modest gains its top-earning households made in 2013, combined with losses its low-income households suffered in earlier years.

Conclusion

These findings confirm that income inequality remains a salient issue in many big cities today. Moreover, they lend support to the concern that rising incomes at the top of the distribution are not—at least in the short term—lifting earnings near the bottom, even in local markets.

Since the debate over the $15/hour minimum wage started in Seattle in late 2013, many other cities—including Chicago, Los Angeles, New York, and San Francisco—are considering or have enacted increases to the minimum wage locally. While the minimum wage is a potentially important means for helping low-earner households living in high-cost places, local policymakers should not ignore the other tools they have at hand—from education to economic development to housing and zoning policies—that are essential for improving social mobility and sustaining income diversity in big cities today.