Are City-Level Income Segregation and Income Inequality Related?

Are income inequality and income segregation at the city level connected? An Economic Synopses essay examined this question and found that there is a relationship between income inequality and income segregation in the 100 largest U.S. cities and that it has changed over time.

“In 1980, cities with more income inequality did not exhibit higher income segregation. But by 2015, that pattern had changed: Cities with higher levels of income inequality now also have higher levels of income segregation,” wrote Hannah Rubinton, who is an economist at the St. Louis Fed, and Maggie Isaacson, who was then a senior research associate.

Measures of Income Segregation and Income Inequality

For their measure of income segregation, the authors used the rank-order information theory index, which is based on where a household’s income ranks within its city. Sean F. Reardon and Kendra Bischoff developed the rank-order information theory index. For more, see their January 2011 article “Income Inequality and Income Segregation.” A rank-order index of 0 suggests that there is no income segregation—that is, each neighborhood has an income distribution that matches the city’s. In contrast, an index of 1 indicates perfect segregation—that is, the city has a separate neighborhood for households of each income rank, the authors explained.

For their measure of income inequality, Rubinton and Isaacson used the Gini coefficient for total family income. They explained that a Gini coefficient of 0 means that the distribution of income is perfectly equal, meaning that every household has the same total income. On the other hand, a Gini coefficient of 1 means that one household has all the income while the other households have none.

The Relationship between the Measures Strengthens over Time

To look at the relationship between income inequality and income segregation in 1980 and 2015, the authors used scatter plots that include a line of best fit, as shown in the figure below.

Income Inequality versus Income Segregation for Top 100 Cities, 1980

Income Inequality versus Income Segregation for Top 100 Cities, 2015

SOURCES FOR BOTH FIGURES: American Community Survey, 1980 U.S. Census and authors’ calculations.

The authors highlighted two examples—Miami, Fla., which was one of the most income-segregated cities in their dataset, and Scranton, Pa., which was one of the least income-segregated cities:

1. Miami had a Gini coefficient of 0.377 and a rank-order index of 0.073 in 1980. Those values increased to 0.471 and 0.116, respectively, in 2015.
2. Scranton had a Gini coefficient of 0.303 and a rank-order index of 0.035 in 1980. In 2015, those values had risen to 0.412 and 0.059, respectively.

Overall, the authors noted that the relationship between income inequality and income segregation was slightly positive in 1980, although the slope of the line of best fit (0.0306) wasn’t significantly different from 0. In 2015, the relationship was stronger, and the slope of the line of best fit was 0.521 and was statistically significant.

“More-unequal cities are much more segregated by income than their more-equal counterparts,” Rubinton and Isaacson wrote. “In 2015, a city at or above the 90th percentile of income inequality was, on average, 35.55% more segregated by income than a city at or below the 10th percentile of income inequality.”

What might have driven the stronger relationship between income inequality and income segregation over time? The authors mentioned one potential factor related to income inequality rising substantially over this period.

“As income inequality has increased since 1980, high-income families have more money to spend and are more willing to spend that money on neighborhoods with expensive amenities, like better schools,” they wrote. “The resulting income segregation can lead to growing gaps in outcomes for children of high- and low-income parents.”

1. Sean F. Reardon and Kendra Bischoff developed the rank-order information theory index. For more, see their January 2011 article “Income Inequality and Income Segregation.”