How rich is too rich? It depends on where you live

Do healthier cities experience greater income inequality? That’s one of the implications of a new Brookings Institution study released this week. Larger, more dynamic cities – think New York, San Francisco and DC – are more unequal than their smaller, less economically-diverse counterparts. As it turns out, a rising tide doesn’t necessarily lift all boats.

The authors arrive at this finding by examining the “95/20 ratio.” In their words,

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. In other words, 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.

They find that Atlanta, San Francisco, Miami and Boston lead the pack when it comes to this measure of inequality. In Atlanta, households in the top 5% made nearly 19 times as much money as households in the bottom 20%. To put this figure in context, this is higher than the CEO-to-worker pay ratio at Microsoft and Berkshire Hathaway.

The 95/20 ratio across the 50 largest cities stands at 10.8, compared to 9.1 for the entire nation. But this ratio hides a lot of variation between cities at the top and bottom of the income distribution. San Francisco and Miami, for instance, have nearly identical 95/20 ratios. But a high-income household in San Francisco can expect to earn more than double what a high-income household in Miami earns. A Detroit high-earner can expect to earn less than a third of her counterpart in San Francisco.

So why do Miami and Detroit have such high 95/20 ratios? Because their low-wage earners make considerably less than their counterparts in San Francisco. In Detroit, for instance, the bottom 20% of households make less than $10,000 per year. Detroit’s median income of $23,000 is barely more than the $21,000 earned by San Francisco’s poorest households.

The chart below breaks out the detail for the 20th, 50th, and 95th income percentiles in the 50 cities Brookings studied. One striking finding? In each city the median wage is a lot closer to the bottom of the income distribution than it is to the top.

unequal_cities_v2

Inequality is often framed as a problem of the richer getting richer and leaving everyone else behind. But the Brookings study is a helpful reminder that it’s just as much an issue of the poor getting poorer – and staying that way.

Christopher Ingraham writes about politics, drug policy and all things data. He previously worked at the Brookings Institution and the Pew Research Center.
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