Martin Prosperity Institute Research

by Richard Florida and Charlotta Mellander

Abstract:

This paper examines the geographic variation in wage inequality and income inequality across US metropolitan areas and analyzes the factors associated with each. A large literature focuses on the role of skill-biased technical change in shaping inequality; other recent studies have noted the connection between inequality and metro size. We map both types of inequality and conduct regression analyses of the determinants of each. Our findings indicate that wage inequality and income inequality are quite different from one another. Wage inequality across metros to be closely is associated with skills, human capital, technology and metro size, in line with the extant literature. However, wage inequality explains only 15 percent of income inequality across metros according to our analysis. Furthermore, we find skills, technology, human capital and metro size be either weakly or not related to income inequality. We also find no relationship between income inequality and average incomes and only a modest relationship between it and the percent of high income households. Our findings indicate that income inequality is more closely associated with unionization, race and especially with poverty. These findings suggest that perhaps too much attention has been paid to skill-biased technical change, the changing nature of the labor market, and the effects of high-income households and not enough to the role of declining unionization, race, and endemic poverty in shaping income inequality across the United States.

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