This paper examines the relationship between urban density and
the degree of income inequality both within and between neighbourhoods defined by Census block groups. The researcher uses data on household income to compute the variance of the income distribution for each of 359 US metropolitan areas over the years 1980, 1990, and 2000.

The researcher then decomposes the variances into components associated with the dispersion of incomes within block groups and components associated with the dispersion across them.

The findings indicate that income inequality - defined by the variance of the log household income distribution - does indeed rise significantly as urban density declines. This increase, however, is associated with rising inequality within block groups as cities spread out. The extent of income variation exhibited between different block groups, by contrast, shows virtually no association with population density. There is, accordingly, little evidence that sprawl is systematically associated with greater residential segregation of households by income.

Urban decentralisation has generated a number of concerns about the welfare of metropolitan area populations. One such concern is a rising disparity between neighbourhoods, especially the decline of incomes in central cities relative to those of their suburban counterparts.

As metropolitan areas expand, the majority of both employment opportunities and relatively high-income households may shift from centre to periphery, thereby creating a widening income gap between these two areas. Over time, these differences may then become more pronounced as the poor become increasingly isolated from productive interactions with wealthier neighbours.

The results suggest that, although the variance of a metropolitan area’s household income distribution is indeed strongly, negatively associated with its overall density, the association operates through a within-neighbourhood channel rather than a between- neighbourhood channel.

That is, as the population of a metropolitan area spreads out, household income inequality increases largely because the extent of income variation among households within the same block group rises, not because neighbourhoods become more segregated by income.

Upon closer inspection, the data do reveal some evidence that decentralization tends to be accompanied by rising between-neighbourhood income gaps, but only at the top of the block-group income distribution. Moreover, there appears to be little association between density and either the average income of the block group at the 90th percentile or that of the block group at the 10th percentile.

Federal Reserve Bank of St. Louis, Research Division
Christopher H. Wheeler

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25/05/2006

Christopher H. Wheeler

research

Urban Policy > Urban environment > Land use

Urban sprawl