Where Are The Rich Getting Richer?

Is growing income inequality in the United States a national pheneomena?

The answer is "no", according to a report released back in 2006 entitled “Income Distribution and the Information Technology Bubble”, by James K. Galbraith and Travis Hale at the University of Texas (abstact utip.gov.utexas.edu/abstract.html#UTIP27).

Instead, a handful of IT and financial hot spots are driving almost all of the increaes in income inequality for the United States as a whole.

It is widely recognized that income inequality increased in the 1990’s, but nobody knows quite why. . . .

One says the culprit was declining unionization. Another ties it to immigration and outsourcing. A third theory is that the demand for high-level cognitive skills has increased, while other explanations range from changes in executive compensation to the lack of policy initiatives directed toward the working poor. . . .

Their study used data on average income and population by county available from the Bureau of Economic Analysis, available at bea.gov/bea/regional/reis. . . . their work does not examine inequality among individuals, but rather differences in average income across counties. . . . income inequality was flat in the first half of the 1990’s, then rose sharply in the second half. After 2000, the inequality index declined again.

[Which] counties that contributed the most to the increase in income inequality from 1994 to 2000 [?] . . . 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 90’s. 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.

[H]alf 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.

[T]he income gains of the 1990’s associated with the technology bubble not only accrued to a relatively small number of people but also occurred in a relatively small number of geographic areas. . . . what would have happened to the index if just 4 of the 3,100 counties in the United States exhibited average income growth in the technology boom years. The four are Santa Clara, San Mateo, San Francisco (all associated with Silicon Valley) and King County, Wash. (home of Microsoft). . . . If the per capita income in just these four counties had grown at the same rate as the average in the United States, income inequality across counties would have changed little in the late 1990’s. In other words, only four counties drove most of the change across the 3,100 counties.

The resulting narrative is a slight variant of the finance industry's compensation is surging argument, expanded to include the information technology sector as well.