How decades of inequality drove American cities apart

gap inequality concept
gap inequality concept  

In 1980, highly paid workers in Binghamton, New York, earned about 4 1/2 times what low-wage workers there did. The gap between them, in a region full of IBM executives and manufacturing jobs, was about the same as the gap between the workers near the top and the bottom in metro New York City.

Since then, the two regions have diverged. IBM shed jobs in Binghamton. Other manufacturing disappeared, too. High-paying work in the new knowledge economy concentrated in New York City, and so did well-educated workers. As a result, by one measure, wage inequality today is much higher in New York City than it is in Binghamton.

What has happened over the last four decades is only partly a story of New York City's rise as a global hub and Binghamton's struggles. Economic inequality has been rising everywhere in the United States. But it has been rising much more in the booming places that promise hefty incomes to engineers, lawyers and innovators. And those places today are also the largest metros in the country: New York, Los Angeles, San Francisco, San Jose, Houston, Washington.

Data from a recent analysis by Jaison Abel and Richard Deitz of the Federal Reserve Bank of New York captures several dynamics that have remade the U.S. economy since 1980. Thriving and stagnant places are pulling apart from each other. And within the most prosperous regions, inequality is widening to new extremes. That this inequality now so clearly correlates with city size - the largest metros are the most unequal - also shows how changes in the economy are both rewarding and rattling what we have come to think of as "superstar cities."

In these places, inequality and economic growth now go hand in hand.

Back in 1980, Binghamton's wage inequality made the region among the most unequal in the country, according to the Fed analysis. It ranked 20th of 195 metros as measured by comparing the wages of workers at the 90th percentile with those at the 10th percentile of the local wage distribution, a measure that captures the breadth of disparities in the local economy without focusing solely on the very top. In 1980, New York City was slightly less unequal, ranking 44th by this measure.

Forty years ago, none of the country's 10 largest metros were among the 20 most unequal. By 2015, San Francisco, New York, Houston, Los Angeles, Dallas and Washington had jumped onto that list, pulled there by the skyrocketing wages of high-skilled workers. Binghamton over the same period had become one of the least unequal metros, in part because many IBM executives and well-paid manufacturing workers had vanished from its economy.

In effect, something we often think of as undesirable (high inequality) has been a signal of something positive in big cities (a strong economy). And in Binghamton, relatively low inequality has been a signal of a weak economy. (The Fairfield-Bridgeport, Connecticut, metro stands out in either era because the deep poverty of its urban core is surrounded by particularly rich suburbs.)

These patterns are hard to reconcile with appeals today for reducing inequality, both within big cities and across the country. What are Americans supposed to make of the fact that more high-paying jobs by definition widen inequality? Should New Yorkers be OK with growing inequality in New York if it is driven by rising wages for high-skilled workers, and not falling wages for low-skilled ones?

"That's more of a political question," said Nathaniel Baum-Snow, an economist at the University of Toronto. "That's a question of what we decide our values should be as a society."

Tom VanHeuvelen, a sociologist at the University of Minnesota who has also researched these patterns, said: "It seems obvious to me that it doesn't need to be the way that it is right now. This isn't the only inevitable outcome we have when we think about the relationship between cities, affluence and inequality."

Economists say that the same forces that are driving economic growth in big cities are also responsible for inequality. And those forces have accumulated and reinforced each other since 1980.

High-skilled workers have been in increasing demand and increasingly rewarded. In New York, the real wages for workers at the 10th percentile grew by about 15% between 1980 and 2015, according to the Fed researchers. For the median worker, they grew by about 40%. For workers at the 90th percentile, they nearly doubled.

That is partly because when highly skilled workers and their firms cluster in the same place today, they are all more productive, research shows. And in major cities, they are also tied directly into the global economy.

"If you're someone who has skills for the new economy, your skills turn out to be more valuable in bigger cities, in a way that wasn't true 30 to 40 years ago," Baum-Snow said.

It is no surprise, then, that high-skilled workers have been sorting into big, prosperous cities, compounding the advantages of these places (and draining less prosperous places of these workers).

At the same time, automation, globalization and the decline of manufacturing have decimated well-paying jobs that once required no more than a high school diploma. That has hollowed out both the middle class in big cities and the economic engine in smaller cities. The result is that changes in the economy have disproportionately rewarded some places and harmed others, pushing their trajectories apart.

Add one more dynamic to all of this: Inequality has been rising nationally since the 1980s. But because the Bay Area and New York regions already had more than their fair share of one-percenters (or 10 percenters) in 1980, the national growth in income inequality has been magnified in those places.

"We've had this pulling apart of the overall income distribution," said Robert Manduca, a doctoral student in sociology and social policy at Harvard University who has found that about half of the economic divergence between different parts of the country is explained by trends in national inequality. "That overall pulling apart has had very different effects in different places, based on which kinds of people were already living in those places."

Manduca says national policies like reinvigorating antitrust laws would be most effective at reducing inequality (the consolidation of many industries has meant, among other things, that smaller cities that once had company headquarters have lost those jobs, sometimes to big cities).

It is hard to imagine local officials combating all these forces. Increases to the minimum wage are likely to be swamped - at least in this measure - by the gains of workers at the top. Policies that tax high earners more to fund housing or education for the poor would redistribute some of the uneven gains of the modern economy. But they would not alter the fact that this economy values an engineer so much more than a line cook.

"If you brought the bottom up, it would be a better world," said Richard Florida, a professor at the University of Toronto who has written extensively about these trends. "But you'd still have a big rise in wage inequality."

This article originally appeared in The New York Times.

© 2019 The New York Times Company


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