Income inequality is a growing problem in municipalities across the country. The latest U.S. Census Bureau data confirms that overall, big cities remain more unequal places by income than the rest of the country and the problem has gotten worse in recent years. The Brookings Institution released a study that shows the increases in income inequality in the country’s largest 50 cities.
Income inequality can be measured by using the “95/20 ratio”. This figure represents the income at which a household earns more than 95 percent of all other households, divided by the income at which a household earns more than only 20 percent of all other households. Essentially, it represents the distance between a household that just cracks the top 5 percent by income, and one that just falls into the bottom 20 percent. In the last 35 years, members of the top 5 percent have generally experienced rising incomes, while those in the bottom 20 percent have seen their incomes stagnate.
The big cities with the highest 95/20 ratios in 2012 were Atlanta, San Francisco, Miami, and Boston. In each of these cities, a household at the 95th percentile of the income distribution earned at least 15 times the income of a household at the 20th percentile. In Atlanta, for instance, the richest 5 percent of households earned more than $280,000, while the poorest 20 percent earned less than $15,000. In another six cities (Washington, D.C., New York, Oakland, Chicago, Los Angeles, and Baltimore), the 95/20 ratio exceeded 12. Overall, 31 of the 50 largest U.S. cities exhibited a higher level of income inequality than the national average.
Interestingly, the study found that in many cities, inequality rose, not because the rich got richer while the poor got poorer – but because the rich became somewhat poorer while the poor got much poorer.
A city where the rich are very rich and the poor very poor means a far too narrow tax base from which to sustainably generate revenue that would allow the city to provide services. It also makes it increasingly difficult for cities to maintain mixed-income environments thus creating concentrations of poverty that have proven disastrous for residents living in those environments, especially in policy areas like housing, public safety, and education. For example, in education, research has shown that there exist tangible benefits for low-income children learning in mixed-income environments. The increased stratification in communities means a reduction in the benefits of learning in a mixed environment. Likewise, public housing projects decades ago demonstrated the public safety impact of concentrated poverty.
Moreover, this analysis requires an understanding of regional economic and mobility trends – particularly the fact that a larger percentage of people in poverty now live in suburbs as opposed to cities. Those whose incomes decline face increasingly limited options of where to live and are oftentimes forced out of the city. In Chicago for example, almost a quarter million residents left the city over a 10 year period. A large number of these moved to areas immediately south and west of the cities borders – particularly areas with lower taxes, a lower cost of living, but less social service infrastructure to handle high-need populations. High-income households did not lose much ground during the recession. however, Alan Berube of Brookings states that low-income households lost ground and haven’t gained it back. The pressures around the cost of living are higher at the low end than they are at the high end, thus the resulting population loss in areas where residents can no longer afford to live.
No doubt, these factors have generated calls for action at various levels of municipal government and community organizations. In Chicago, the Workers Organizing Committee of Chicago’s “Fight for 15″ calls for an increase in wages to $15 for workers. They argue that an increase in the living wage means fewer individuals and families relying on government assistance. New York’s new Mayor Bill de Blasio has identified income inequality as a key policy area for action. He proposes shifting the tax burden, but also the implementation of initiatives that would attract middle-class families with cheaper housing and better schools. Minneapolis Mayor Betsy Hodges has made equity a central part of her list of priorities and in San Francisco which saw one of the highest increases in income inequality, equity has become a hot topic.
It is incumbent upon mayors across the country to prioritize income inequality and develop sound policy that not only preserves growth, but also creates opportunities for individuals and families to rise out of poverty. Ensuring that large segments of the population are not being left behind economically is not only necessary for healthy, growing communities, it is necessary for a city to truly thrive.