A recent report issued by the Federal Reserve Bank of New York showed that economic performance and wage growth has been strongest in coastal cities like San Francisco and New York, and concentrated in the hands of a few skilled industries that have benefitted from globalization and rapid technological change. At the same time, many in those cities have seen stagnant wages combined with ever higher cost of living.
In inland locations like the Rust Belt, the forces of globalization and automation have hit workers the hardest, the report showed. On the upside, wage inequality is lowest there due to a weaker economy. Cities like Detroit, which have been hit hardest by these forces over the last four decades, has seen weak wage growth for all income earner levels.
All of this brings forth the question: will cities be able to combat the forces contributing to these vast inequalities. Indeed, many of the same coastal cities have taken measures to address inequality. New York City, for example, has rent controlled and rent stabilized apartments. In June, New York state passed a new law with additional protections for renters, capping rent increases following vacancies and building improvements.
New York City also raised its minimum wage to $15 an hour in 2018 in an effort to reduce wealth inequality.
San Francisco has introduced similar laws. Rent increases in the Bay Area city are tied to inflation, and increases due to building improvements are capped. However, there are notable exceptions like rental units built after 1979; condos also have less rental protections than apartments. In July, the city’s minimum wage increased to $15.59, $3.59 higher than the California state minimum.
But despite the efforts of local and state governments, the efforts to reduce inequality have had limited effect. In the report, the authors don’t advocate implementing any new or specific policies at the local level; they merely call their findings “a first step”. Some economists argue, however, that steps at the state and federal level can visibly reduce income inequality.
“If technological change or globalization was the driving cause, all advanced industrialized countries would be experiencing similar changes in wage income inequality,” economist Mark Stelzner told Occupy.com. “European countries and Japan have not seen an increase in pre-tax wage income inequality like in the United States.”
Stelzner said deregulation across U.S. economy was a big culprit leading to higher income inequality. In areas like finance, deregulation has to led to more speculative investments and more mergers and acquisitions. The results: lucrative opportunities for investors and managers, but not so much for average wage earners.
Opportunities for explosive growth – and literally the chance to become a millionaire overnight – are well publicized in the tech sector. Deregulation contributed to the billions in profits made by Facebook, Microsoft and Google through their market dominance over the last two decades.
“Google acquires one small firm a week in efforts to maintain market dominance. This would not be possible with a more stringent antitrust policy like was in place in the 1960s,” Stelzner said.
These high earning industries have been concentrated in major cities, and the talent they recruit – who make six figures on average – have benefitted from the growth. But the wealth hasn’t trickled down the economic ladder. The Fed report shows that in cities like New York and San Francisco, workers in the top 10th percentile earned seven times as much as those in the bottom 10th percentile.
According to Stelzner, one of the ways to reduce income inequality would be through a graduated income tax. The Tax Cuts and Jobs Act of 2017 reduced tax rates for most Americans, but data show most of the benefits went to the wealthiest, with little to no effect in job creation or wage growth that would offset the increased deficit.
Economic regulation is generally strongest in liberal leaning states like New York and California (although California is noticeably absent from a 48-state joint investigation into whether Google is violating anti-trust laws). These states also have among the highest income tax rates in the nation. Yet without federal regulation and a higher effective income tax rate, those same cities face a more daunting task of combatting wealth inequality.
