Media Briefings

INEQUALITY IN BIG CITIES: Why urbanisation makes the world more unequal

  • Published Date: December 2014

Large cities are more unequal than the nations that host them, according to research by Kristian Behrens and Frederic Robert-Nicoud, published in the December 2014 issue of the Economic Journal. For example, income inequality in New York is considerably higher than the US average and similar to that of Rwanda or Costa Rica.

Their study explains why this happens – in a nutshell, because large cities are places that disproportionately reward the most talented people (the ‘superstars’) and that disproportionately fail the least talented. They conclude that cities should be the primary focus of policies to reduce inequality and its adverse consequences for society.

Inequality and social unrest

Thomas Piketty and the 2014 FIFA World Cup in Brazil have more in common than meets the eye. The Capital bestseller of the former and the social unrest associated with the launch of the latter are two recent and vivid reminders of the salience and resurgence of income inequality.

Several explanations for increasing income inequality have been proposed, including skill-biased technological change brought about by computers and modern telecommunications, the expansion of global goods and labour markets, and changes in countries’ skill and age distributions.

Yet one pattern has largely gone unnoticed: inequality is especially strong in large cities. In an age in which virtually all countries in the world are simultaneously experiencing unprecedented urbanisation and sharply rising earnings inequality, the question of a possible link between the two patterns naturally arises.

Large cities are more unequal than the nations that host them

This study first documents that income inequality is especially strong in big US cities, irrespective of their industrial composition, age and educational structures, or racial composition. The researchers use a standard measure of income distribution, the Gini coefficient, which ranges between 0 (complete equality) and 1 (maximum inequality).

Their analysis reveals, for example, that the metropolitan statistical area (MSA) of Las Vegas, the 32nd most populated US city, has a Gini coefficient that is close to the US average of 0.45. At the lower end of the spectrum, Hinesville-Fort Stewart in Georgia, one of the smallest MSAs, has a Gini coefficient of 0.36, close to that of the UK. By contrast, the largest US MSA, New York, has a Gini coefficient of 0.5. In other words, income inequality in New York is similar to that of Rwanda or Costa Rica.

Large cities are thus more unequal than the nations that host them. Since large cities represent an increasing share of a nation’s population, they certainly contribute to the observed changes in national income distributions.

The researchers then explore a possible mechanism that could explain this correlation. They develop a theory of selection – ‘survival of the fittest’ – that explains why larger cities are more unequal places.

In a nutshell, large cities are places that disproportionately reward the most talented or productive people – the ‘superstars’ – and that disproportionately fail the least talented or productive ones. Disproportionate rewards at the top and a larger share of unsuccessful people at the bottom of the skill distribution then translate into larger earnings inequality in big cities.

The theory also predicts that increasing globalisation among global cities will translate into larger urban income inequality. One novel aspect of the analysis is to emphasise the existence of both a direct effect of increasing globalisation on inequality (the superstar effect) and an indirect effect that goes through increasing urbanisation and the growth of cities. The latter has not been much analysed until now.

Global urban winners take all: should we care?

What are the possible implications for public policy? The first message of this research is that cities are the correct spatial scale for looking at inequality. The reason is also sociological: people perceive inequality more strongly when they see it at close range. The spatial proximity of ‘favelas’ and modern football stadiums in Brazil offers a striking contrast.

Second, cities are not only the locus where inequality materialises but they are also hosts to mechanisms that contribute to changes in that inequality. As such, focusing on cities is of primary interest when it comes to designing policies that aim at reducing inequality and its adverse social effects.

ENDS

Notes for editors: ‘Survival of the Fittest in Cities: Urbanisation and Inequality’ by Kristian Behrens and Frederic Robert-Nicoud is published in the December 2014 issue of the Economic Journal.

Kristian Behrens is at the University of Quebec in Montreal. Frederic Robert-Nicoud is at the Geneva School of Economics and Management.

For further information: contact Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com; Twitter: @econromesh); Kristian Behrens via email: behrens.kristian@uqam.ca; or Frederic Robert-Nicoud via email: frederic.robert-nicoud@unige.ch