The Larger the City, the Bigger the Pay Gap
If you're convinced that in the United States, the rich get richer and the poor get poorer, you are absolutely right -- especially in big cities, where the situation is even more extreme, according to a recent study.
Using U.S. Census data and American Community Surveys that covered the entire United States, Ronni Pavan of the University of Rochester and and Nathaniel Baum-Snow of Brown University found that the larger the city, the wider the wage gap among its workers.
In other words, the country's largest cities -- New York, Los Angeles and Chicago -- are home to the greatest extremes in incomes, while midsized cities experience relatively less wage inequality and rural areas the least. "Our results show that overall up to one-third of the growth in the wage gap between the rich and the poor is driven by city size independent of workers' skills," Pavan says.
"There is a lot of concern in general about the growing disparity between the highest and lowest paid workers," says Pavan. Today's typical CEOs brings home 300 times more than the average wage earner, a gap that is 10 times larger than it was in the 1970s. According to the Central Intelligence Agency's Gini index, this disparity puts the United States last among Western industrialized nations for wage equality. And of course, there are more CEOs in larger cities.
Larger metropolitan areas, more so than their smaller counterparts or rural areas, have experienced rapid growth in wages, the study finds. Professionals, and even down to some high-school dropouts, in large metropolitan regions have been earning fatter paychecks. At the same time, the bottom has fallen out of the lower end jobs, especially in bigger cities, explains Baum-Snow.
"If we want to understand what's causing the wage gap, we now know we need to look at the unique economies of our larger cities," says Pavan.
For example, Pavan says, "populous regions have been able to support advanced technologies and industries that would be impractical or impossible in smaller communities and rural areas, and workers have more opportunities to learn advanced skills and are exposed to innovation more rapidly. As financial centers, larger cities also have easier and cheaper access to capital for bankrolling new ventures."
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