View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

short essays and reports on the economic issues of the day
2008 ■ Number 31

Local Income Inequality
Rubén Hernández-Murillo
lthough national income inequality is a subject of great
governments to reduce inequality by redistributing wealth: As
concern in the popular press and in political rhetoric,
noted, the richer and highly skilled will move if returns to skill
income inequality at the local level is more evident because
decline. Communities with more generous redistributive policies,
inequality tends to be much higher in densely populated areas;
in the form of welfare programs, also affect the location patterns
consequently, some economists focus their attention there. The
of less skilled immigrants and will tend to attract more poor
chart shows a correlation of 45 percent between county-level
income inequality and population density for 2007. Differences in
Glaeser, Resseger, and Tobio suggest that education policies
local inequality reflect, for the most part, three important factors:
to improve the skill levels of individuals at the bottom of the
differences in the distribution of job skills, differences in the
distribution might be more effective at reducing inequality than
returns that individuals gain from their skills, and differences in
redistributive policies. They warn, however, that changing the
government policies.
distribution of human capital would take several years, if not
Economists Glaeser, Resseger, and Tobio find that almost one
decades. More important, they note that because the United States
half of the variation in income inequality across metropolitan
has a decentralized schooling system, in which schools are run
areas can be explained by differences in the distribution of skills.1
by local governments, attempts to equalize education opportunities across cities would require potentially difficult and costly
They identify two reasons for this: First, particularly at the medium
coordination between national and local governments. ■
and high skill levels, the differences in skills observed today can be
explained largely by the historical patterns from several decades
1 Glaeser, Edward L.; Resseger, Matthew G. and Tobio, Kristina. “Urban Inequality.”
ago; in other words, historical patterns of skill level are very perNBER Working Paper No. 14419, National Bureau of Economic Research,
sistent. Second, where people choose to live, especially those with
October 2008;
lower skill levels, affects the distribution of skills: For example,
recent Hispanic immigrants have disproportionately lower skill
levels than immigrants from other ethnic backgrounds and lower skill levels than immigrants from
Income Inequality and Population Density in Counties
previous decades. Historical patterns are also imporIncome Inequality (Gini index)
tant in this case because many Hispanic immigrants
often locate in the same areas of the country—those
geographically close to Latin America, such as
California, Texas, and Florida.
Inequality across cities also reflects differences
in the returns to skill, although it is not clear why
skill is rewarded more in some places than others.
One potential explanation is that densely populated
Line of Best Fit
areas generate human capital spillovers (i.e., the
sharing or passing on of skills) because of the concentration of skilled individuals working together,
which causes the returns to rise. Economists also
recognize that highly skilled individuals are sensitive
to differences in these returns and can easily migrate
Population Density (in logs)
to those places where their skills are valued more.
NOTE: The Gini index ranges between 0 and 1 and indicates how unequal a distribution is relative to a distribution
Differences in government policies also explain
that is perfectly even. A larger index value indicates higher inequality. Population density is measured as the number
persons per acre and only counties with a population density of more than one person for every two acres are
some of the variation in income inequality. However,
included in the plot.
the high mobility of more skilled, and consequently
SOURCE: U.S. Census Bureau, 2007 American Community Survey. County acreage measures are from the 2000 Census.
richer, individuals severely limits the ability of local


Views expressed do not necessarily reflect official positions of the Federal Reserve System.