Explaining Inter-Urban Variation in the Level and Distribution of Income

Abstract

Little is currently known about the determinants of the level or distribution of income within urban areas. Although hypotheses have been advanced which have relevance to these issues, comprehen? sive studies in this area are not available. This paper presents re? sults of a study of inter-city variation in income levels and income distribution. Models are advanced in an attempt to explain variation in the extent of income inequality, the percentages of families at the top and bottom of the income distribution and the mean level of in? come across urban areas. Explanatory variables relied upon in these models are estimates of the level of education and work experience, output concentration, unionization, firm size, racial and sexual discrimination and unemployment. Results of tests using cross-sec? tion data are varied but the models utilized do, in general, explain a high proportion of variance in both level and distribution variables and indicate statistically significant relationships for a number of included independent variables. The current income distribution literature places very heavy em? phasis on the importance of human capital in explaining variation in the level and distribution of income. According to this view it is primarily productivity differences and smoothly functioning factor markets which underlie the observed distribution of income. [Becker, Chiswick, Mincer] Carefully developed challenges to this view are now being advanced. [Bowles and Gintis, Thurow, 1976] Through both the theoretical models advanced and the empirical results at? tained, this study also offers some refutation of the strict human capital perspective. The empirical results indicate that while human capital considerations are not irrelevant, other considerations (gen? erally referred to as market imperfections) are equally if not more important. The following section of this paper is devoted to a discussion of background issues in methodology and economic analysis. Section II includes an outline of the specific models tested. Section III is