Abstract
Income inequality or economic polarization refers to the gap between the “haves” and “have-nots” in society. While gross disparities in income and wealth distribution have always resulted in economic hardships and a much lower standard of living for large segments of the population in most parts of the world, it has been a particularly vexing phenomenon and reality in developing and undeveloped countries. Until about three decades ago, income equality seemed to diminish somewhat or at least not worsen in the United States. That is, from the Great Depression until the 1970s, there was consistent documentation to indicate that the income situation of the least affluent had improved at a faster pace than that of the most affluent.
By the 1980s, however, convincing evidence began to emerge to suggest that the gap between the richest and poorest Americans had begun to increase again. According to New York University Economist Henry Wolff (2014), the proportion of all of the nation’s wealth held by the top 1 percent households, increased from 33.4 percent in 1962 to 35.7 percent in 2013. The biggest increase was found in the next wealthiest tier which contains 4 percent of all U.S. households; their share increased from 21.2 percent in 1962 to 28.2 percent in 2013. And what about for the bottom 40 percent? their share fluctuated between 1.5 percent and −0.9 percent (i.e., negative net worth) for the entire five-decade period of the Wolff study.
A Pew Research Center (2015b) analysis in 2013 reported that the wealth gap between upper-income people and the rest of America was the widest on record. More specifically, it found that the median net worth of the nation’s upper-income families was 6.6 times that of middle-income families and nearly 70 times that of lower-income families. The analysis also showed that since 1983, virtually all of the wealth gains made by U.S. families have gone to the upper-income group. Of equal concern has been the concomitant shrinking of the middle class and its income (see Pew Research Center 2015a); the existence of a vibrant middle class historically has been considered to be a vital indicator of a truly developed society.
The Center’s findings about growing inequality in the United States are reinforced by the Gini index which is computed by the U.S. Census Bureau. This index is a summary statistic that measures the dispersion of incomes on a scale of zero (everyone has exactly the same income) to one (one person has all the income). The income Gini for the United States has been rising for decades. On an equivalence-adjusted basis, the Gini was 0.362 in 1967 and 0.464 in 2014 (Pew Research Center 2015b).
Suffice it to say that a plethora of studies by other entities (e.g., International Monetary Fund, Organization for Economic Cooperation and Development) report a similar, and usually a worse, income inequality situation outside the United States.
Local governments, as the level of government that delivers so many of the services used by citizens on a daily basis, are particularly affected by increasing income inequality. They face at least three daunting challenges in their efforts to manage income inequality. First, the service demands on local governments resulting from increasing income inequality can be substantial. Increasing levels of income inequality may mean that there are similar increasing numbers of residents in need of social welfare, health care, housing, food, law enforcement, and other services. Unfortunately, there is the strong likelihood that revenues to pay for these needed services are less certain or even shrinking. The lack of revenues can result from wealthier citizens and businesses departing the local government, while higher levels of unemployment mean reduced tax collections. Moreover, higher crime and deteriorating infrastructure can reduce tourism and recreation-related expenditures. Second, the federal and state governments have not been politically or financially willing in recent years to provide the needed assistance to local governments to help pay for the increased service demands or develop and implement the programs needed to ameliorate the conditions that foster inequality. Finally, it is generally thought that local governments are not well suited, by themselves, to address the pressing issues that foster inequality. Wealthier citizens of a community and even businesses can simply move to another jurisdiction to escape the increased crime, unacceptable quality of life, poorer schools, or other consequences of inequality or any higher taxes enacted to pay for programs to address inequality.
In spite of these seemingly overwhelming challenges, local governments and states have and are making efforts to deal with income inequality. The 2015 Special Issue of State and Local Government Review presents five excellent and timely studies that examine various aspects of income inequality mostly among local governments but also one article that focuses on U.S. state governments.
Lazaras Adua and Linda Lobao’s article “Business Attraction and Redistribution by U.S. Local Governments” investigates the relationship between local government efforts to promote economic development and their ability to maintain, especially in times of increased inequality, needed social services. Using a national sample of U.S. counties, they find that two of the three economic development approaches used by counties to promote growth do not result in social service cuts. The authors encourage more “nuanced” research to better understand how local governments continue to provide social services while at the same time fostering economic development.
Wesley J., Leckrone, Michelle Atherton, Nicole, Crossey, Andrea Stickley, and Meghan Rubado’s article “Does Anyone Care about the Poor? The Role of Redistribution in Mayoral Policy Agendas” looks at the extent to which city mayors discuss issues related to income inequality in their state of the mayor addresses. The results indicate that fiscal and economic development issues are much more important than social welfare issues in the mayors’ addresses. It was not possible to identify any significant independent variables that explain the social welfare content of the mayors’ addresses. A number of factors explain the focus on economic development content in the speeches including a negative coefficient for the measure of segregation in mostly nonwhite cites. The authors conclude that “… depending on one’s political persuasion, cities either sadly have their hands tied in their approach to solving the social ills and inequality of their populations, or they are finally on the road to recovery through a neoliberal agenda.”
Augustin Leon-Moreta’s article “Municipal Incorporation: Socioeconomic and Policy Factors of Influence” analyzes U.S. municipal incorporations. The results of his study indicate that income “segregation” has increased in more recent years and can result in uneven taxation and spending in cities. His research examines if this income segregation promotes more incorporations among unincorporated communities. He finds that income heterogeneity does indeed increase the probability of incorporation, particularly where municipal per capita revenue is greater, land use regulation is nonrestrictive, and the population is growing.
Sarah Young’s article “The Impact of Economic Development Strategy on Market Conditioned Income Inequality in the American States” examines the impact of economic development policies in the U.S. states. She finds that the economic development policies she examines do not result in more equal income among state residents. This prompts her to propose that state leaders who are concerned about income inequality should focus on economic development policies that benefit all the classes of workers.
Oliver Canales Meza’s article “Local Governments, Democracy, and Inequality: Evidence on the Political Economy of Inequality-reducing Policies in Local Government in Mexico” studies the relationship between democracy, development, and inequality. It focuses on the link between electoral competition and the provision of inequality-reducing policies by Mexican local governments. The results indicate that the degree of electoral competition interacts with the level of development of the local government to hinder or promote policies that affect income inequality. He concludes that it is important for both developed and developing countries to ensure that electoral politics does not hinder governmental capacity to solve deep social and economic problems.
The results of the research in these articles do, in some instances, provide encouragement that subnational governments can take actions that may ameliorate income inequality. In other instances, efforts to reduce income inequality have been elusive. Whatever the findings, our goal was to publish some superb articles that will result in continuing research that will eventually affect public policy in this timely and important issue.