The voices of Urban Institute's researchers and staff
July 15, 2015

Is falling inequality always a good thing?

July 14, 2015

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As shown in our recent report, inequality between the nation’s most affluent and most distressed neighborhoods has been rising at both the national scale and locally. But there are exceptions to every rule: in 29 of the nation’s 214 commuting zones (CZs) with over 250,000 residents, neighborhood inequality went down from 1990 to 2010.

That’s good news, right? Perhaps we should look to these areas for lessons on equitable growth for the whole country. Unfortunately, there are at least two different explanations for this falling inequality, making the picture less clear.

The first is the good news story. In 21 CZs, inequality fell because of shared growth, with income rising significantly in both top and bottom neighborhoods. In Savannah, for example, the average real income in top neighborhoods grew by around $6300 from 1990 to 2010 and by almost as much—$6000—in the bottom neighborhoods. This amounts to about a 5 percent increase in top neighborhoods compared with a 22 percent increase at the bottom. In the process, the ratio between the incomes at the top and bottom fell from 4.35 to 3.76 because economic improvements accrued across the board.

The second dynamic isn’t so positive. In eight CZs, inequality dropped because economic restructuring undermined the regional economies to such an extent that middle- and upper-income households either left town, retired, or took pay cuts. At the extreme of this trend was Fort Wayne, Indiana, where the average income of top neighborhoods fell by 19 percent from 1990 to 2010. But bottom neighborhoods also suffered over these two decades, with average income falling 13 percent. As a result, the ratio between top and bottom incomes fell from 3.5 to 3.25.

Unfortunately, there is not a clear lesson from “good” and “bad” falling inequality

Is Savannah a case study of successful local economic development, then? It depends on your perspective. Incomes have risen faster in Savannah’s bottom neighborhoods than in the top ones, but they started from an especially low level. In 1990, only 14 of the 214 commuting zones had bottom-neighborhood incomes lower than Savannah’s. Between 1990 and 2010, Savannah’s port became more important, its main manufacturer—Gulfstream Industries—expanded, and tourism increased. All these trends helped lift incomes at the bottom faster than those at the top. But even now, households in bottom neighborhoods have less income than in the average CZ. It’s too early, then, to say that Savannah represents a case study of equitable growth.

Savannah and Fort Wayne both serve as good examples, then, of why inequality can’t be our only yardstick for evaluating outcomes of economic development. While most observers agree that we have too much economic inequality, they disagree about strategies to reduce inequality, especially those involving lowering the incomes of top households and limiting high-income residential enclaves.

Fortunately, we have measures beyond inequality to rate economic outcomes. Do places and nations prevent or reduce material hardship? Do they foster economic mobility over the life course and generations? Do they assure the economic security of people who are just getting by and resilience for those whose lives are disrupted? Since these metrics arguably relate more directly to economic inclusion more directly than inequality does, and they appeal to more stakeholders, we need to add them to the mix as we consider what looks like successful economic development.

 The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. Urban Institute work utilizing the Neighborhood Change Database is funded by The Rockefeller Foundation. Funders do not determine research findings or influence scholars’ conclusions. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Spanish Moss hangs from a tree along a street in the historic district of Savannah. Photo by David Goldman/AP.

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