The Income Gap Is Getting Worse in American Cities

(Bloomberg) -- The chasm between America’s top income earners and the middle class is widening in nearly every major metropolitan area, with San Francisco leading the way.

The tech hub’s "super-rich versus middle-class" gap swelled by $118,000 to $529,500 over the past five years, as the top 5 percent of households earned $632,310 in 2017, compared with $102,785 for the middle class, according to the Bloomberg analysis of U.S. Census data.

The San Francisco metro area ranked No. 12 in last year’s index comparing the gap between households in the top 5 percent versus those in the middle 20 percent or third quintile.

Other cities with ballooning income gaps included Boise City, Idaho; Knoxville, Tennessee; San Jose, California and Honolulu, Hawaii.

The richest-to-middle class gap widened in all but one of the 100 largest U.S. metro areas measured. The gap in Jackson, Mississippi, decreased by almost $25,000 due to a drop in the average annual income among the top 5 percent of households.

Rich Get Richer

Since 1973, the top 1 percent in every state has increasingly captured a larger share of economic output, according to Mark Price, a labor economist at Keystone Research Center in Pennsylvania. Beginning in the 1970s, public policy favored industry deregulation and discouraged unionization on expectations growth would accelerate and all groups would benefit, according to Price.

"The reality is that the economy hasn’t performed better than it did in the earlier era when union density was higher, minimum wage was relatively high and rising, and when more industries were regulated by the public sector," Price said. "What growth we have seen has been highly unequally distributed, and you can look at that across all states."

Blaming Big Tech

San Francisco and San Jose, headquarters to tech and finance companies such as Twitter Inc., Cisco Systems Inc. and Wells Fargo & Co., attract educated global job-seekers with high salaries and bonuses -- which studies show can drive up rent, food and other costs of living. Meanwhile, many small businesses and services don’t match those wage levels, resulting in widening inequalities within metro areas.

Cities have struggled with the double-edged sword of tech-company-driven prosperity and inequality, Daryl Fairweather, chief economist for property-brokerage Redfin Corp., said in an annual market forecast. "Tech companies and local governments will continue to go head to head," he said.

In San Francisco and San Jose, income grew six percentage points faster for the middle-class than that of the top brass but the picture is more disheartening in Boise City -- as the top group’s income grew nearly 50 percent from 2012 to 2017, far outpaced the increase experienced by those in the middle. Boise also benefited less from international migration, with only one international mover for every 14 domestic ones, the lowest ratio among large metro areas.

Silicon Valley Prominence

A second take of the data -- the gap between the highest 20 percent income group versus the lowest 20 percent -- landed San Francisco in the No. 1 spot again, with the divergence expanding by $79,600 to $339,900 in 2017. San Jose, Seattle, New York and San Diego completed the top five spots.

New York, in the fourth spot, "will stand out as having a lot of growth and inequality as a reflection of the fact that it’s home to the financial sector," Price said. "New York state is the home to chief executive officers, and those are the primary drivers of the rapid rise of income at the top."

Behind high-tech and finance, the poor in distressed industrial centers languished further. The bottom quintile of households in 37 of the largest metro areas -- including Detroit and Chattanooga, Tennessee -- were below the poverty threshold.

Middle Class Gap

Bloomberg’s third categorization of the data looked at income disparity within the middle class by measuring the gap between households in the 30th versus 80th percentile by region.

San Jose and San Francisco were again at the top but switched spots from last year. On a national scale, the income gap within the middle class rose by $12,800 to $85,200.

A different picture emerges if relative change is used instead of absolute income. Allentown, Pennsylvania -- home to S&P 500 companies Air Products & Chemicals Inc. and PPL Corp. -- and Charleston, South Carolina -- home to software firm Blackbaud Inc. -- were among the 11 metro areas where middle-class spreads jumped by more than 20 percent. Only San Jose, San Francisco and Honolulu had larger relative growth.

To access the full data set on the Bloomberg terminal, click HERE.

For additional data:
Super Rich vs. Middle Class Gap
Rich vs. Poor Gap
Middle-Class Income Span

--With assistance from Zara Kessler.

To contact the reporters on this story: Shelly Hagan in New York at shagan9@bloomberg.net;Wei Lu in New York at wlu30@bloomberg.net

To contact the editors responsible for this story: Alex Tanzi at atanzi@bloomberg.net, Lee Miller

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