When it comes to inequality, where you live matters more than you think

Place matters. This simple concept has never been better understood than today. Mounting evidence suggests that where an individual grows up has a significant and causal impact on their life outcomes, from health to earnings. At a time when income inequality is dominating the political dialogue, policy-makers should not overlook geography’s important role in determining equality of opportunity.

That’s why the Economic Innovation Group (EIG) – a new ideas laboratory and advocacy organization in Washington, DC – recently released the 2016 Distressed Communities Index (DCI). The DCI incorporates seven metrics into a multidimensional survey of prosperity and distress across the United States, providing a high-resolution look at the disparities in economic well-being between American communities.

At its most granular level, the DCI’s zip code level analysis makes it possible to study the extent to which economic well-being varies within an individual city, county or metro area. Thus, the DCI presents a new way of measuring inequality as it is experienced at the community level – with lessons for those looking to ensure more broadly shared prosperity.

Why suggest a new way to look at inequality? Income inequality, while important, bears only indirectly on the neighbourhood effects that are so critical to determining equality of opportunity. A more nuanced understanding of the ways in which economic inequality manifests itself community by community should better enable policy-makers and civic leaders to tackle the problem at its roots.

As the two figures below show, inequality is about far more than income. The figures report the average value for each of the seven indicators making up the DCI in the most distressed and most prosperous fifth of US zip codes. The gap in community-level well-being is far larger than one might expect to find within a single developed country. In the US, distressed zip codes combine poverty with joblessness, low educational attainment, and a deep and ongoing recession, while the country’s prosperous zip codes flourish in every respect.

In fact, these yawning gaps in well-being often exist within close proximity to each other – a phenomenon EIG has called “spatial inequality”. To show how this type of inequality differs from conventional (income-based) measures of inequality, the below graph plots the difference between the rank of the 25 largest US cities in terms of spatial inequality (tick marks) and income inequality (circles). Cities are sorted by income inequality (based on GINI coefficients); spatial inequality, for its part, measures the breadth of the distribution of EIG’s distress scores within a city. The comparison produces two very different pictures of inequality.

Income inequality tends to run highest in the largest cities, but spatial inequality runs highest in a mix of Sun Belt and Rust Belt cities. The income gaps in New York, Boston and other dynamic cities are huge, but economic well-being at the community level does not vary significantly across zip codes. Most neighborhoods offer employment opportunities and socioeconomic diversity. By contrast, cities with more equal income levels – mainly due to their relative lack of extremely high earners – such as Columbus, Ohio or San Antonio, Texas, in fact hide extreme differences in community-level well-being.

In these spatially unequal cities, zip codes mere miles away can occupy completely different worlds and economic experiences. High-distress communities are not only poor but confront high housing vacancy rates, endemic worklessness, and active disinvestment. Where community-level factors diverge so starkly, economic mobility is likely to be low. The long-lasting, intergenerational ills associated with concentrated poverty are most likely to dig their roots deeply in these cities where socioeconomic mixing rarely takes place.

Relative differences notwithstanding, very few cities have achieved true spatial equality. Even fast-growing knowledge-economy tech hubs such as Austin, Boston, Denver and Durham struggle to generate prosperity that is broadly shared across every neighbourhood. Across the 100 largest US cities, only nine combine relatively high levels of prosperity with relatively low levels of spatial inequality. Only one of those, Madison, Wisconsin, was a core city of a larger metropolitan region; others were prosperous suburban business hubs such as Arlington, Virginia, and Plano, Texas, or middle class enclaves such as Virginia Beach.

Public policy can be an important tool for catalysing economic activity in the places that need it most and connecting individuals in those places to greater opportunity. If policy-makers wish to expand equality of opportunity, attacking inequality at its community-level roots must be a priority in local and national efforts.