Run through a list of some of the most populated metropolitan areas in the country — New York City, San Francisco, Houston, Chicago — and they all have something in common besides their size. They’re extremely unequal.
In all of these cities, wages for workers in the top 10% of earners are six to seven times those of workers in the bottom 10%, according to a report published Thursday by the Federal Reserve Bank of New York. While income inequality has been ticking up nationally since the 1980s, it’s now particularly pronounced in large metropolitan areas, according to the New York Fed.
“Larger metropolitan areas tend to be more unequal than smaller metropolitan areas and that was not always true,” Jaison Abel, a research officer at the New York Fed, told reporters Thursday.
Abel highlighted a few reasons that explain the high levels of income inequality in large metropolitan areas. For one, the demand for skilled workers has been particularly high in many of these regions over the past several decades, as they have shifted from making stuff to producing ideas and complex services. That’s led to outsized gains for workers with the highest incomes in those areas.
In addition, highly skilled workers have benefited more from the tendency of businesses to cluster in tight geographic areas — economists call this “agglomeration economies” — which increases productivity. Finally, skilled workers are increasingly moving to large urban areas that offer amenities and high wages.
Underpinning all of these trends are broader forces shaping the economy and increasing income inequality in the country overall. Abel highlighted automation and globalization as major reasons why the demand for highly skilled workers has increased. He offered the theoretical example of an auto assembly line, which decades ago would be staffed by workers with largely physical skills. Now, that line is staffed by fewer workers who instead need skills to work with the robots and machines running the line. Demand is high for those workers as well as the people who can invent the robot and design its software. What’s more, much of the more traditional manufacturing is now done by people overseas, he said.
Many of the unequal areas highlighted in the report are also relatively wealthy, which makes narrowing the wage gap challenging. For example, the New York Metro region is economically much better off overall than a region with a smaller gulf between the top and bottom earners, such as Youngstown, Ohio.
“What’s challenging about thinking about wage inequality is that these same forces that are leading to wage inequality are the same forces that are giving economic progress,” Abel said. “That’s not to say that inequality is not a concern,” he later added.
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