The continued rise in geographic inequality contrasts the recent national decline in income inequality. The tight labor market since the mid-2010s, excluding the worst months of the pandemic, has pushed up wages most for people at the low end of the wage distribution. Transfers and tax policies have also contributed to a decline in income inequality.
Why has geographic inequality risen even as overall income inequality declined? Faster-growing, high-wage sectors like tech, finance, and professional services have clustered in specific places in order to take advantage of “agglomeration economies,” which are especially strong for industries with highly educated or specialized workers. At the same time, many of these places where tech and other professional industries cluster have built too little housing; high housing costs price out lower-income people, adding to geographic inequality. As a result, some of the places where average incomes have risen most since 1980 — like Boston and the San Francisco Bay Area — have had relatively slow population and employment growth. Tech clusters developed (and average incomes rose) outside the largest metros in places that built more housing, like Austin, Raleigh, and Provo-Orem (Utah). But these success stories are the exception, not the rule. For the most part, during the years of rising geographic inequality since 1980, richer places have stayed richer, and poorer places have stayed poorer.