When the recent financial crisis began back in late 2007, media reports noted that income inequality in the U.S. was at a historic level, unequaled since the time of the 1929 crash and the ensuing economic depression. Case in point: The top 1% of wealthiest Americans took home nearly a quarter of the nation’s income.
Worthy of exploration is whether such level of income inequality contributes to a host of social problems. Is there an association between rising inequality and violent and property crime rates or growth in rates of poverty?
In an effort to determine if the income gap has in fact increased, we examined per capita market income county level data over the 1980 to 2008 time span. Per capita market income does not include government transfer receipts, reflecting only income obtained through the market.
Market income is an alternative way to examine income inequality than the more traditional per capita income measure. By eliminating government transfer payments, we can see more clearly the effect of the markets on income inequality.
We divided all U.S. counties into ten equal groups (just over 300 counties in each group) based on their per capita market income in 1980, 1990, 2000 and 2008 (All income is in 2008 dollars.) Metro and nonmetro status (urban and rural) was based on the 2003 Office of Management and Budget definitions.
As shown in the figure above, the per capita market income of the top 10% wealthiest counties in the nation increased 63.8% between 1980 and 2008 compared to a 38.3% increase in the 10% poorest counties.
In 1980, the per capita income in the richest counties was 2.6 times that of the poorest group of counties. By 2008, the 10% wealthiest counties in the nation had a per capita market income that was 3.5 times higher than the 10% poorest counties in the nation.
Income Inequality Growing in the Metro U.S.
Like the nation as a whole, the income gap between the richest group of urban counties and the poorest grew between 1980 and 2008 (see graph below). The wealthiest 10% of metropolitan counties in the nation had an average per capita market income that was 2.3 times higher than the poorest 10% in 1980, but the gap figure accelerated to 2.8 by 2008.
The wealthiest 10% of metro counties in the nation saw their average per capita market income increase almost 70% between 1980 and 2008, contrasted to a 38% increase for counties located at the lowest income tier.
Growth of Rural Income Inequality Less Severe
Rural counties are growing more unequal, but they have less income inequality than cities. (See the graph below.)
From 1980 to 2008, rural America experienced an expansion in the income gap between the wealthiest and least affluent counties. But, the extent of the gap was much smaller than that found in metro America.
The per capita market income gap between the wealthiest 10% nonmetro counties and the poorest 10% nonmetro counties increased from 2.5 in 1980 to 2.7 in 2008. The wealthiest 10% nonmetro counties saw their average incomes increase 57% compared to a 41% gain in the poorest 10% of nonmetro counties.
Without question, rural counties—be they at the upper or lower end of the per capita market income continuum – could not keep pace with the income growth experienced by metro counties.
For example, the top 10% of the wealthiest metro counties in the U.S. had a per capita market income in 2008 that was nearly 30% higher than that of the wealthiest 10% of nonmetro counties. In 1980, income in the richest urban counties was 21% higher than in the richest rural counties.
In their highly acclaimed 2009 book titled The Spirit Level: Why Greater Equality Makes Societies Stronger, Richard Wilkinson and Kate Pickett argue that income inequality creates a number of damaging effects on societies (or communities). Their book led us to explore the relationships that might exist between income inequality in U.S. counties and some of key social problems.
Our core measure is the Census Bureau’s 2000 measure of county level income inequality. The Census uses a Gini coefficient, a measure that calculates the income distribution ranging from 0 to 100. A higher Gini coefficient indicates the presence of greater income inequality in that county.
We then divided the nation’s 3,104 counties into ten equal groups based on their Gini coefficients. The following graphs show the deciles in the horizontal axis. The more you move to the right in the horizontal axis, the more unequal the income distribution.
As shown in the graph below, there is a clear relationship between income inequality and the violent crime rate. (This rate is the number of violent crimes per 1,000 people.) As income distribution becomes more unequal, the violent crime rate increases.
Counties with a more equal income distribution had a violent crime rate of 2.28 per 1000 persons compared to a violent crime rate of 7 in counties with the highest level of income inequality.
A similar pattern can be found when examining property crime rates. The more unequal the distribution of income, the higher the property crime rates on a per 1000 person basis. The only exception to this pattern is the group of counties situated in the highest group of income inequality continuum.
How about the rate of teenage birth rates? Again, as income inequality increases so, too, do the number of births among teenagers. (The rate is the number of births per 1,000 females age 15 to 19.) The upward trend is far less consistent than was found with crime rates. However, the most unequal counties have a teenage birth rate 10 percentage points higher than those counties with a most equal distribution of income (31.4 vs. 21).
Let’s now turn to poverty. Both the overall individual poverty rate and child poverty rate are about 2 ½ times greater in counties on the top rung of the income inequality ladder than counties with the lowest levels of income inequality.
In summary, per capita market income has increased at a much higher pace in the wealthiest counties compared to the poorest counties between 1980 and 2008, resulting in a greater concentration of income in these upper tier counties.
Unfortunately, the increasing gap between the “haves” and “have nots” can contribute to the worsening of key social problems. Our brief analysis documents how income inequality has some relationship with crime rates (both violent and property), teenage birth rates, and poverty rates (overall and child poverty).
As the debates regarding the national debt continue to play out in Congressional chambers and state capitals across the country, decisions on investing or disinvesting in the safety net for people or places with the least amount of resources will be made. We would suggest that policy makers also consider the continuing increase in income inequality in this country — and the ill effects associated with this trend.
Roberto Gallardo is a research associate of the Southern Rural Development Center at Mississippi State University. Bo Beaulieu is the director of the center.