Regional Economic Disparities Result from Rising National Income Inequality

Policy Recommendations

Treat regional disparities as a national policy problem.
Consider regional implications when evaluating economic policies.
Highlight the regional development effects of national inequality-reduction policies.

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One of the core challenges facing the United States today is the growing economic disparities between different parts of the country. Since 1980 the country has become economically bifurcated into a handful of booming metropolitan areas and a larger set of regions (of all sizes) that have seen their relative incomes decline. As a result, almost a third of Americans today—roughly triple the share that did so in 1980—live in a metropolitan area either substantially richer or substantially poorer that the nation as a whole.

Growing regional disparities are typically described as resulting from changes to the geographic distribution of high-paying jobs and high-income workers—in particular, the increasing tendency of workers of different education levels to live in different cities from one another. For example, college graduates who grow up in rural areas frequently move to cities after graduation rather than return home. Over time this has resulted in lower average education levels in rural places compared to some large cities.

The research described in this policy brief, however, shows that regional income divergence results much more from rising income inequality at the national level than from regional sorting by education or income level. It documents two underappreciated facts about regional income divergence: (1) that growing disparities are driven primarily by the richest few percent of the population, not the college-educated public at large, and (2) that growing disparities are due more to changes in how much money the richest few make than to changes in where they live.

These findings are uncovered using simulations based on georeferenced Census microdata. By simulating what the geographical income distribution would look like under specific hypothetical scenarios, it is possible to uncover which contributors to regional divergence are the most impactful.

1. Increasing regional income disparities are driven by the richest few percent of the U.S. population.

Regional income divergence is overwhelmingly driven by the very richest members of society. Previous research has emphasized the role of education in driving divergence, noting that college educated and non-college educated workers are increasingly sorted into different metro areas from one another.

It turns out, however, that most of this effect is driven by a much more select group—the richest few percent of the population. A full 50% of the divergence in mean family incomes across regions since 1980 is attributable to changes that have happened among the richest 1% of society. Another 25% is driven by the next 9 percentiles. The poorest 90% of society—a group that includes at least two-thirds of college graduates—has seen only about a quarter as much income divergence as has happened overall. This means that increasing regional disparities are less a function of changes among the college-educated population in general and more a function of changes affecting the very rich.

2. Regional income disparities are primarily the consequence of rising national income inequality, not increased income sorting.

Growing regional income disparities result more from changes to the income distribution—specifically, rising income inequality—than from changes in where workers of different income levels live.

Many researchers and policy makers have approached regional divergence through the lens of sorting, thinking of divergence as resulting from changes in the spatial location of different types of workers or industries. This logic suggests that struggling cities should focus on attracting growing industries and high-income workers to reboot local economies. However, income divergence could equally result from changes to the shape of the income distribution—not who lives where, but how much money they make. As the rich have gotten richer over the last 40 years, it is possible that they have actually dragged up the average incomes of the places where they live.

It is possible to estimate the importance of income sorting and income inequality to the divergence experienced in the United States with simulations holding either the amount of sorting or the level of income inequality constant at 1980 levels. For instance, you can simulate the effect on regional divergence had people stayed in the same city where they were in 1980 but inequality had gone up as in reality. Or conversely, what the effect would be if sorting had progressed as in real life but inequality had not increased.

The results of the simulations show that rising income inequality at the national level is a larger contributor to regional disparities than the sorting of people across places by income level. In other words, if there had been no sorting whatsoever, rising inequality would still have resulted in more than half as much regional income divergence as actually occurred. But without the effect of rising inequality, sorting on its own would have produced less than a quarter of the observed divergence. Thus, changes in where workers of different types live matters some in explaining regional income divergence, but changes in how much they make matters more.

Policy Implications

Together, these two findings suggest that growing inequalities between regions should be thought of first and foremost as the spatial consequence of rising income inequality in general. As the richest 1% of Americans have taken a larger and larger share of the economic pie, the regions where they happen to live have seen their incomes pull away from the rest of the country.

Narrowing the income disparities between different places in the United States will be almost impossible without also reducing the amount of income inequality overall. This means that growing regional disparities should be thought of in large part as a national policy issue and not simply the responsibility of state and local governments. Conversely, these findings imply that policies aimed at reducing inequality at the national level will, at the same time, have the beneficial effect of reducing income inequality between places.

Local economic development policies, though potentially beneficial, are unlikely to substantially reduce the gaps between regions on their own. In addition to local and State policies, economic policy at the national level should be designed with the explicit goal of promoting economic convergence among U.S. regions. National policies that would contribute to reduced disparities between places include strengthened antitrust enforcement, large scale federal investments in social and physical infrastructure, and greater federal funding of local governments.

Source

Manduca, Robert. 2019. “The Contribution of National Income Inequality to Regional Economic Divergence.” Social Forces. (https://doi.org/10.1093/sf/soz013).

Suggested Citation

Manduca, Robert. 2019. “Regional Economic Disparities Result from Rising National Income Inequality.” Policy Brief No. 01-2019, Sociology Policy Briefs, May 1. Retrieved Month Day, Year (https://www.policybriefs.org/pdfs).

Author Biography

Robert Manduca (rmanduca@g.harvard.edu) is a PhD student in Sociology and Social Policy at Harvard University. His research focuses on urban and regional economic development and the consequences of rising income inequality for U.S. society. You can find him online at robertmanduca.com and on Twitter @robertmanduca.

Acknowledgements

This research was supported by the Harvard Multidisciplinary Program in Inequality and Social Policy.

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Author Biography