NCPA - National Center for Policy Analysis

MANY THEORIES ON INCOME INEQUALITY, BUT ONE ANSWER LIES IN JUST A FEW PLACES

September 21, 2006

According to University of Texas researchers James K. Galbraith and Travis Hale, much of the increase in income inequality in the late 1990s resulted from large income changes in just a handful of locations around the country -- precisely those areas that were heavily involved in the information technology boom.

Their study used data on average income and population by county.  A big advantage of looking at county data is that it is possible to identify counties that contributed the most to the increase in income inequality from 1994 to 2000:

  • It turns out that the five biggest winners in this period were New York; King County, Wash. (with both Seattle and Redmond); and Santa Clara, San Mateo and San Francisco, Calif., the counties that make up Silicon Valley.
  • The five biggest losers were Los Angeles; Queens; Honolulu; Broward, Fla.; and Cuyahoga, Ohio.

What do the counties in the first list have in common?  Their economies were all heavily driven by information technology in the late 1990s.  This is true for the rest of the list of winners as well. Harris, Tex. (home to Houston and Enron); Middlesex, Mass. (home to Harvard and M.I.T.); Fairfield, Conn.; Alameda, Calif.; and Westchester, N.Y., were also among the top 10 income gainers in this period.

  • The authors point out that half the 80 American companies in the CNET Tech Index are in those top 10 counties.
  • Furthermore, when income inequality decreased after 2000, the income drop in the high-tech counties contributed most to the decline.
  • New York, interestingly enough, showed large increases in per capita income both during the Internet boom and the Internet winter that followed.

Source: Hal R. Varian, "Many Theories on Income Inequality, but One Answer Lies in Just a Few Places," New York Times, September 21, 2006; based upon: James K. Galbraith and Travis Hale, "Income Distribution and the Information Technology Bubble," University of Texas, University of Texas Inequality Project, Working Paper 27, January 14, 2004.

For text (subscription required):

http://www.nytimes.com/2006/09/21/business/21scene.html

For UT study:

http://utip.gov.utexas.edu/papers/utip_27.pdf

 

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