4 Decades of Inequality

The ratio of inequality to population in 195 metro areas between 1980 - 2015

Economic inequality is measured by comparing the distribution of income (the amount of money people are paid) and the distribution of wealth (the amount of wealth people own). It has been rising everywhere in the United States, but it's rising much faster in the places that attract engineers, lawyers and innovators with top salaries. Those places today are America's cities: New York, Los Angeles, San Francisco, San Jose, Houston, and Washington D.C.

Using data from a recent analysis by Jaison Abel and Richard Deitz of the New York Fed, we can visualize how inequality in major metropolitan areas has changed over time. In the chart above, dots represent metro areas and the color of each line is shaded according to the change in inequality between 1980 and 2015. The paper's authors use the “90/10 ratio” to define the rate of economic inequality. This ratio is the wages earned by a worker at the 90th percentile of the wage distribution divided by the wages earned by a worker at the 10th percentile in each place.

The 90/10 ratios range from a high of 8.7 in Fairfield, Connecticut, to a low of 3.9 in Johnstown, Pennsylvania, with a median of 5.2 across all metropolitan areas. These ratios indicate that in Fairfield, a worker at the 90th percentile earned nearly nine times as much as a worker at the 10th percentile, but in Johnstown, a worker at the 90th percentile earned only about four times as much as one at the 10th percentile.

Why is this happening?

Abel and Deitz find three drivers of wage inequality: differences in the local demand for skilled and unskilled workers; urban agglomeration economies, which tend to favor higher-skilled workers; and the migration of skilled workers between locations.