Is the Gap Widening Between the Rich and Poor?

A new report by the Brookings Institution looks at the gap between the richest and poorest households.

Washington, D.C.—A new report by the Brookings Institution reveals that the gap between the richest and poorest households grew wider between 2007 and 2013.

The report, written by Alan Berube, a senior fellow and deputy director of the Brookings Metropolitan Policy Program, and Natalie Holmes, a senior research assistant at the Metropolitan Policy Program, examined income inequality in America’s 50 largest cities during the six-year period, the most recent data available from the U.S. Census Bureau.

The analysis focused on incomes among households near the top of the distribution—those earning more than 95 percent of all other households—and households closer to the bottom of the distribution—those earning around 20 percent of all other households. From there, it derived a formula for the gap between the two, called the “95/20 ratio.”

The study found that big cities continue to exhibit greater income disparities between rich and poor households than the rest of the country. Across the 50 largest cities, households in the 95th percentile of income earned 11.6 times as much as households at the 20th percentile, a considerably wider margin than the national average ratio of 9.3.

The reasoning, Holmes and Berube write, is because in larger cities the rich have higher incomes, and the poor lower incomes, than their counterparts nationally. From 2012 to 2013, the inequality ratio widened in both cities and the nation overall, as incomes at the top grew somewhat faster than incomes at the bottom.

Data shows that in a dozen of the 50 largest cities, the rich became significantly richer between 2012 and 2013, topped by Seattle with a nearly $36,000 increase. Cleveland, Jacksonville, Fla., and Louisville, Ky., showed the next largest differentials between rich and poor ($21,000 in Jacksonville and Louisville; $14,000 in Cleveland.) Incomes for wealthy households also jumped by double-digit rates in San Jose, Calif.; Dallas; and Portland, Ore.

One anomaly in the findings concerns Albuquerque, N.M., which was the only one of the 50 largest cities to see 95th-percentile incomes decline from 2012 to 2013. The authors wrote that “The Albuquerque region has struggled economically in recent years, and weak growth there seems to have affected households near the top.”

Over all, most high-income households in cities have recovered the ground they lost during the recession. By 2013, in only eight of the 50 largest cities were incomes for top-earning households significantly lower than their 2007, pre-recession levels, with Las Vegas seeing the largest dip, at 19 percent.

Trends through 2013 left many cities with higher levels of inequality than they exhibited in 2007, prior to the recession, with 21 of the 50 cities posting s higher 95/20 income ratio in 2013 than in 2007. Atlanta and San Francisco, the cities with the highest inequality ratios in 2013, exhibited the largest increases in their ratios over that time.

“These findings confirm that income inequality remains a salient issue in many big cities today,” the authors write. “Moreover, they lend support to the concern that rising incomes at the top of the distribution are not—at least in the short term—lifting earnings near the bottom, even in local markets.”