I’ve written a few times recently about the apparent concentration of innovative potential in large urban areas, as the agglomeration of people, money and technology provides a fertile environment for new ideas to emerge. It’s a scenario in which you can imagine those cities getting richer whilst smaller towns and communities lag in their wake.
For much of the last century however, that hasn’t been the case, as a rising US economy has seen the gap between the richest and poorest parts of the country shrink. New research suggests that this may no longer be the case, with a clear shift occurring in the last forty years, during which the number of communities at both the extreme rich end of the scale and the extreme poor end has risen three-fold.
“In 1980, only about 12 percent of the population lived in places that were especially rich or especially poor,” the author says. “By 2013, it was over 30 percent. So what we’re seeing is a polarization, where people are increasingly living in places that are either much richer or much poorer than the country overall.”
Inequality to blame
The paper goes on to suggest that whilst there is undoubtedly an element of high-income people, and indeed high-paying jobs, moving to cities and thus becoming more geographically concentrated, the main culprit for this polarization is rising inequality on a national scale. The author argues that since the 1970s, the income of the wealthiest has grown at a significantly faster pace than for the rest of the population.
“It’s not so much that the spatial distribution of people who are in the richest few percentiles has changed, but that being in those top one or two percent is now associated with having a much higher income,” they explain. “So it may be that people at the top end of the income distribution were already living in cities like New York or San Francisco, and now that they’re getting a much larger share of the pie, they are dragging their cities along with them.”
The hypothesis was explored by running a number of counter-factual simulations to test whether inequality or sorting was the prime culprit. The experiment assumes that only one of these things happens at any one time. For instance, income inequality could be held at a certain level (1980 in this instance), and the simulation then runs with sorting as the prime factor. In this scenario, the divergence rose by around 23% of the actual amount we’ve seen.
When the experiment was flipped however, and sorting remained constant whereas income inequality grew at its actual rate, then 50% of the divergence actually occurred. Suffice to say, at the moment it’s a relatively blunt finding, and the author plans to further explore things to examine what kind of policy changes occurred in the 70s and 80s to contribute to the divergence that followed.
“There were all these national economic policy changes—financial deregulation, weaker antitrust enforcement, a lower federal minimum wage—that we don’t typically think of as having a spatial component to them. But they really do. They benefited some parts of the country much more than others,” he says.
So can anything be done to counter the widening income gap? The paper doesn’t paint a particularly optimistic picture, and indeed suggests that attracting new industries to poorer regions may not be enough to prevent the gap from widening.
“That’s been one of the big takeaways from this paper.” the paper concludes. “A lot of the work that looked into regional divergence in the past ended up asking questions like, ‘Why are people in biotech going to Boston, and how can we get them to go to other locations instead?’ And this paper suggests that is maybe not the way we’re going to solve this problem.”
