An Empirical Analysis of Income Inequality and City Size

Abstract

Many studies have examined family income inequality, but relatively few have delved specifically into the problem of variation in inequality among cities. Moreover, past analyses of the relationship between income inequality and city size are contradictory.' Using SMSA data, the findings by Farbman [5] and Long, Rasmussen, and Haworth [11; 12] suggest that income inequality rises with city size; Danziger [3] concludes that size has no significant effect on inequality; while the findings by Murray [15] and Frech and Burns [7] tend to support the argument that urban growth allows lower income groups to increase their share of income through legislation, organization, and opportunity. It is clear that the literature is in disagreement with respect to how income inequality varies with city size. Past studies have limited their observations to SMSAs on the basis of the functional nature of their definition as local labor markets bounded by commuting distances.2 However, such analyses overlook many smaller cities that are partially or totally removed from these economic regions. It is reasonable to suspect that employment opportunities and the industrial structure, hitherto important determinants of inequality, will not be ubiquitous over all city sizes. This paper argues that the effects of these differences may be observed more clearly by examining inequality and its determinants over a much broader range of city population sizes. The perspective of this paper is that income inequality will exhibit a U shaped trend over increasing city sizes, with smaller and larger cities experiencing the greatest measures of inequality. Our basic premise is that small urban and rural places that are not in proximity to metropolitan areas will offer few benefits of agglomeration. These smaller cities, lacking the employment opportunities provided by larger cities, should exhibit relatively greater