There’s a place for place

At the 95th percentile of the American wage scale, wages increased from $70,000 in 1965 to $145,000 in 2015, while at the tenth percentile — ten percent from the bottom — wages increased from $15,000 in 1965 to $20,000 in 2015. Ours is a society in which the statistics show economic inequality increasing every year in virtually every geographical area and labor market, leaving people at the top of the wage scale increasing their incomes not only faster in absolute terms but faster in relative terms to those at the bottom. 

These figures come from a recent paper entitled “Why Are Some Places So Much More Unequal Than Others?” by New York Federal Reserve economists Jaison Abel and Richard Deitz. They attribute the widening differences in earnings to the rising premiums earned by skilled workers in urban job markets large and small. 

Wage inequality is not uniform across the nation, they note. “Indeed. It has risen quite sharply in some parts of the country to particularly high levels, while it has been much more subdued in other places,” Abel and Deitz write. “As a result, some places are much more unequal than others, with the magnitude of wage inequality varying considerably across space.”

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Economists call place “space.” Different wages in different places are “spatial economic disparities.”

When it comes to economic inequality, where in space is Ulster County? Somewhere in the middle, more equal than New York City but less equal than the Adirondacks. 

The low-income Adirondacks may be a more wonderful place to live than New York City, but they are not the most desirable place to want to be when it comes to earning a living. Unless you live in Hamilton County, just northwest of Saratoga. On a list of 3061 counties and other areas in the United States, Hamilton County has the distinction of being more equal in income than all but 35 of them. In 2015, its top one percent earned an average of $405,800 each, and the other 99 percent earned a very solid $58,021.  

Hamilton County is an anomaly. Its population of about 5000 is scattered throughout a geographically large space. Its top one per cent might include about 30 people: perhaps a few professionals, a handful of Micron Technology executives, and a semi-retired banker or two. The ratio of the average income of the top one percent to everybody else is a modest seven to one. 

In Ulster County, the earnings in the top one percent in 2015 averaged $615,500 and the other 99 percent $42,385. The ratio of the top one percent to the rest is 14.5 times. And then there’s Manhattan — New York, New York — the anomaly at the top end. Earnings for individuals in the top one per cent in New York County averaged $8,983,400 in 2015. That’s right, almost nine million bucks apiece, tops in the nation. And the bottom 99 percent averaged $79,528, just below Westchester County’s average. New York, New York has a one-percent-to-the-rest ratio of 113 to one.|

Average annual income for the top one per cent in the entire New York City melagopolis, easily the largest labor market in the United States, was $2,425,384. For the remaining 99 percent of earners, incomes averaged $61,550. The top-to-bottom ratio is 39.4 to one.

The geographical income statistics generated annually by the Economic Policy Institute affirm the economic dominance of large urban labor markets. Miami, New York City, Las Vegas, San Francisco, San Jose, Los Angeles are among the leaders not only in numbers of jobs but also in the degree of income inequality. 

What is true at the national level is also true at the state level. Not just New York City but also Albany, Syracuse, Rochester and Buffalo are among the leaders in economic inequality. At 540th place, Kingston is far down the national inequality list among the likes of small upstate metros like Utica-Rome, Olean, Jamestown and Oneonta.

What is the fundamental reason for greater economic inequality in cities? Most experts attribute it to the higher levels of skills development in urban areas. People with highly specialized skills working near each other (“agglomeration”) get paid for developing those skills even further. The more skills they possess, the more they are worth, the more they can earn for exercising and expanding these skills. 

At the same time, the demand for people with fewer skills performing routine work has declined. The change to this kind new kind of economy, which seems to have begun in the late 1970s, has persisted. Inequality has intensified ever since.  

Should American political and economic policies be directed more toward poor places and less toward poor people? An intriguing paper written a year ago by two prominent Harvard economic thinkers, Larry Summers (on the moderate left) and Ed Glaeser (affiliated with the conservative Manhattan Institute), and a graduate student, Benjamin Austin, has made the argument that this maybe should be the case. They stop short, however, of making that change their recommendation. Just suggesting, they say.

The suggestion that government policies should invest in encouraging employment rather than strengthening the social safety net is not an easy one to make. The poor and disadvantaged depend on the safety net for survival. To tell them that their improving their skills is more important than their getting a few more dollars to pay the rent would seem a particularly cruel example of tough love.

Another recent study by economists Raj Chetty and Nathaniel Hendren argues that changes in tax levels alone won’t solve the mobility problem, They found that the career outcomes of children moving to a better neighborhood improve linearly in proportion to the amount of time they spend growing up in that area at a rate of approximately 4% per year of exposure. 

The data shows that the kids who don’t move to a better neighborhood make less than their parents and those that do make more. Rates of mobility, moreover, have fallen from approximately 90 percent for children born in 1940 to half for children born in the 1980s. These results imply that reviving the American Dream of high rates of mobility would require economic growth that is spread more broadly across the income distribution. And changes in tax levels alone won’t solve the mobility problem, Chetty and Hendren warn.

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