The Biggest Economic Divides Aren’t Regional. They’re Local. (Just Ask Parents.)
Regional inequality is often cited to explain just about every challenge the United States faces: political conflict, joblessness, drug overdoses, even the decline of marriage.
Conventional wisdom holds that regions are diverging economically in drastic fashion, and many are raising alarms that fewer people are moving from small towns to prosperous cities.
Research confirms that workers are in fact more productive in densely populated metropolitan areas. But it’s a mistake to think that regional divides are the source of the nation’s core economic problems.
In important ways, states are more alike now than they have been historically. In places other than big metropolitan areas, research shows it’s easier for parents to give children opportunities to become higher-earning adults because the cost of living in a high-quality neighborhood is usually lower. Moreover, people living in smaller towns or cities tend to rate the quality of their communities higher than residents of large metropolitan areas do.
Overrating regional differences
Even as individual income inequality has soared to levels not seen since the 1920s, state-level inequality — comparing, say, Alabama with Iowa — has plummeted relative to the early 20th century and remains low, according to I.R.S. records compiled by economists for the World Inequality Database. The story is similar at the county and metropolitan level, with little change since 1980.
It’s clear from census data that regional inequality contributes very little to total inequality. Within the same state or metropolitan area, inequality today is large and extreme, in part because of the continuing effects of racial discrimination. But across these places, gaps are relatively mild. In other words, the differences between people within a city like Los Angeles are a lot sharper than the differences between residents of California and residents of Mississippi.
Income differences between age groups, education groups and especially occupations are far more meaningful than differences between states or metropolitan areas.
Counties are also becoming more alike in the opportunities they provide children to advance in life. The counties with the lowest upward mobility for children born in 1980 — measured by income at age 26 for children raised in low-income families — had the largest gains in mobility over the next eight years, as reflected by how children born in 1988 performed as adults.
Whether in big or small places, children raised in low-income families face about the same odds of advancing economically. In fact, those in smaller places have had a slight improvement in odds relative to children raised in large metro areas.
In both large and small metropolitan areas, the average child growing up at the 25th percentile of family income outside of a large metro area reaches the 45th percentile of income by age 26. These results come from I.R.S. data prepared by Raj Chetty and Nathaniel Hendren’s Opportunity Insights project.
A child’s neighborhood explains most of the geographic variation in upward mobility, rather than which metropolitan area or which county. This was the conclusion of the Harvard and Census Bureau economists behind the Opportunity Insights Project, whose research was covered by The Upshot.
To be precise, the researchers found that 68 percent of the geographic differences in the income rank of children raised at the 25th percentile could be explained within commuting zones. Neighborhood differences accounted for 54 percent of the total variation. Much of the neighborhood effect is explained by the school attendance zone children grew up in, suggesting that parents can buy upward mobility for their children in part via the housing market.
The high impact of housing costs
The implication is that children are much better off — at least in terms of their earnings as adults — growing up in a so-called good neighborhood in a less populated area than growing up in a struggling neighborhood in a superstar city like New York or Los Angeles.
But that isn’t the only striking thing about metros that aren’t considered superstar cities. In smaller places, it also costs much less to live in upwardly mobile neighborhoods. Being able to afford to live in a good neighborhood today is a stretch but possible for the median single mother. In large cities, it is seemingly impossible.
In addition to the obvious economic advantage of paying less for the same level of opportunity for a child — and gaining access to high-quality schools — reducing the economic pressure on parents may encourage them to work fewer hours and devote more time to child care.
We also know that measurements of social health tend to be higher in places that aren’t part of large metropolitan areas, using data from the Social Capital Project, which looks at things like the percentage of children born to married women; safety from violent crime; voter and Census Bureau participation rates; and charitable giving.
Similarly, people in smaller communities are more likely to volunteer, according to data pooled across several years from the volunteer supplement to the Current Population Survey. There’s also less racial segregation: Minorities are more likely to have white neighbors.
These factors may explain why Gallup research finds that people outside of large metropolitan areas tend to rate community quality higher. The Gallup-Sharecare Community Well-Being Index combines seven survey items, asking respondents their level of agreement with statements like “The city or area I live is a perfect place for me” and “I always feel safe and secure” and “The house or apartment that I live in is ideal for me and my family.”
The responses to these items are significantly more favorable when people live in neighborhoods with higher upward mobility, using data from 324,927 respondents who were surveyed by Gallup from 2015 to 2016 and combining it with the Opportunity Insights database. People living in less populated counties or metro areas also score higher on the index. This is consistent with new survey data from the American Enterprise Institute, showing that people living in large cities are the least satisfied with their communities.
On the other hand, in larger metropolitan areas, Gallup data shows that people are more likely to agree with the statement “I get to use my strengths to do what I do best every day.” This suggests higher engagement with work.
The productivity of parents
Superstar cities are generally excellent places to achieve a satisfying and high-paying career applying specialized skills.
But just as workers can be more productive at their jobs in big cities, parents can be more productive at family life in smaller places. For the parents, it’s through cheaper access to high-quality neighborhoods and social capital, the networks of trust and cooperation that often make a place work. These attributes are understandably appealing, and they help explain why everyone doesn’t simply move to the nearest major metropolitan area in search of better career prospects.
It may be hard to dislodge the commonly held view that the great American economic divergence is between big and successful metropolitan areas and the left-behind towns and rural counties that heavily supported President Trump. Less populated areas surely have their problems. Mortality is higher and education lower; some have seen large job losses.
But any policymaker trying to tackle the country’s most significant problems will quickly find the biggest divides in America are not regional. They remain within metropolitan areas — across neighborhoods and local jurisdictions.
Jonathan Rothwell is the Principal Economist at Gallup and a visiting scholar at the George Washington University Institute of Public Policy. He is the author of a book — forthcoming with Princeton University Press in the fall of 2019 — on political equality and its relationship to economic opportunity. You can follow him on Twitter at @jtrothwell.