Examining Income Inequality In America's Largest Metros
Topic: Income Inquality
Data Source: ACS
"What drags down our entire economy is when there is an ultra-wide chasm between the ultra-wealthy and everyone else," President Barack Obama, April 2012.
Intentionally or not, President Obama recently staked a claim in the debate about the relationship between income inequality and economic growth. Although there's no strong consensus among economists on this topic, cross-national research finds that, in general, countries with higher levels of inequality generally tend to have lower rates of growth. But that finding has to be taken with a grain of salt because the understanding that the relationship between inequality and growth tend to vary with a country's stage of economic development. High inequality is associated with lower growth in developing economies but with higher growth in mature economies.
This discussion isn't going to be over any time soon, but we can look to see how income inequality is related to the wellbeing of the average U.S. household across the 100 largest metropolitan areas in the U.S. Presumably, the differences in economic development across these metro areas is vastly smaller than differences between, say, Bangladesh and Canada. We specifically look to see how median household income in a metro area is related to how equally income is distributed across the households in that metro area. Data are drawn from the 2005-2009 American Community Survey 5-year estimates and reflect income levels and distributions from 2007; income inequality is measured using the Gini coefficient, and we break up the 100 metro areas into four groups of about 25 each (quartiles), ranging from those with most equally distributed incomes to those with the most unequally distributed incomes. (The Gini coefficient measures the dispersion of income on a scale from 0 to 1 where 0 indicates complete equality-everyone has the same level of income-and 1 represents complete inequality-one individual controls all the income. For the past decade the Gini coefficient for U.S. households has been between 0.46 and 0.47.)
Metro areas with lower levels of inequality tend to have higher average incomes. Median household income ranges from an average of $69,700 in the U.S. metro areas with lowest levels of income inequality, down to $62,700 (on average) in the metro areas with the highest levels of income inequality. Now income isn't growth, metro areas aren't countries, and we are just looking at one year, but this finding does fall in line with the President's narrative: in the US, the average household is doing better in terms of income if they live in a metro area where income is distributed more equally, than if they lived in a metro area with a more unequal distribution of income.
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