When Bill de Blasio was elected as New York City’s mayor in 2013 with 73 percent of the vote, he did so on the back of a campaign that highlighted the wide rift between the city’s wealthy and poor. New York, in his eyes, was a living version of Charles Dickens’ A Tale of Two Cities, as the rich in the top 20 percent earned at least 50 percent of the total income taken in by the entire city.
A new paper from the Manhattan Institute, a conservative think tank, argues that despite de Blasio’s campaign against inequality, that divide is widening. According to American Community Survey data, inequality in the city as measured by what’s called the Gini coefficient has trended upward since the end of the Great Recession.
The Gini coefficient is one of the most popular forms of inequality measurement in the world. It’s a statistical barometer that condenses the wildly different household income brackets in a studied area into a number between 1 and 0. A “1” means perfect inequality, in that one individual in a studied area holds all the wealth, and a “0” means perfect equality, in that everyone in that area shares the same exact income.
By the census data, the Gini coefficient for household income in NYC rose from 0.547 to 0.551 between 2013 and 2015. According to another measurement, Thiel’s T, there was a rise from 0.261 to 0.269.
But Alex Armlovich, the author of the Manhattan Institute study, argues that rising Gini coefficient shouldn’t be as alarming to the mayor’s office as de Blasio and company might think it is. He says the Gini method thinks about income inequality in a way that, in order to achieve either a perfect “1” or a perfect “0,” promotes government policies that would push out both the poor and the rich.
Under de Blasio’s administration, New York saw 20,000 affordable housing units built anew or preserved throughout the city. He created an ID card for undocumented immigrants that allows them to access financial services, and cut down the NYPD’s stop-and-frisk policy and arrests for simple marijuana possession. (The latter both have a disproportionately negative impact on low-income people).
If these policies allow low-income residents to continue living side by side with the wealthy, argues Armlovich, that leads to greater economic diversity — and a greater Gini coefficient. That’s why Armlovich says using that popular measurement will only show New York inequality getting “worse,” even if the city is implementing policies that support low-income residents.
“In order to end the ‘tale of two cities,’ it would entail evicting one of the two cities,” he says. “Helping the poor to stay in New York City will boost measured income inequality, but that’s not a bad thing. We have to avoid reading the compass backwards.”
Instead of the Gini coefficient, Armlovich suggests using the less popular but equally reputable Theil’s T. If applied to New York City, he says, the measurement can take an effective microscope to the dynamics of inequality by looking at individual wealth as compared to household wealth. That allows researchers to track inequality down to the employment sectors of each individual — meaning a way to find which jobs are paying the most and the least.
Armlovich used it to look at inequality among 10 of the city’s employment areas, from professional and technical services to insurance carriers, from food and drink services to local government and financial services.
The main cause for New York’s remarkable income inequality? The financial services sector, including what goes on along the financial behemoth of Wall Street. It employs just 4 percent of the entire working population, yet those 4 percent earn 19 percent of the city’s wages and salaries.
Armlovich worries that the opposite approach to a Gini coefficient-based inequality program is to raise the taxes on the city’s highest earners, which could mean risking pushing them and what he identifies as “superstar” industries and businesses out to other states. “The fact that New York City is able to sustain its already-high income taxes is reflective of the fact that it’s already a very desirable place to live,” he says. “But there’s an open question of how much further it could push those top rates without driving out high earners.”
Jonathan Bowles, executive director at the Center for an Urban Future, thinks the city has had a pretty successful run getting populations out of poverty and into the middle class — despite relying on measurements like the Gini coefficient.
And despite this coefficient rising during de Blasio’s tenure, he says, “New York City added a quarter million jobs in 2014 and 2015. That’s the first time the city’s ever done that.”
Crain’s New York recently highlighted other ongoing successes in the city. Its $1.6 trillion gross domestic product makes it the largest economic powerhouse among all urban areas in the U.S., and as an urban area it’s seeing wages rise at a faster rate than the rest of the U.S. (NYC also has a higher GDP than Canada.)
Median household income in New York jumped 5.1 percent in 2015 but shrank to pre-recession levels this year, according to Crain’s columnist Greg David. It’s expected to increase again in 2017 and 2018 because of a new minimum wage, which rises to $11 for employers with 11-plus employees and $10.50 for employers with 10 or fewer employees on Dec. 31.
“New York has far outpaced the rest of the nation in economic growth even though it is arguably the most expensive place to do business and even though the cost of doing business has continued to rise,” says Bowles. To him, Armlovich’s concerns about raising taxes on the wealthy — and the threat that such a move could force more and more of this population to flee to states like Florida, as the Manhattan Institute paper implies — may be unfounded in the greater context of New York’s history as the financial capital of the world.
Armlovich’s concerns also contrast directly with those laid out by 40 millionaires in a letter to New York Governor Andrew Cuomo and other state lawmakers in March 2016. They were requesting higher taxes on top earners in the state to help combat social ills.
“It is a shameful fact that child poverty in New York State is at a record level, exceeding 50% in some of our urban centers,” the authors wrote, in an opinion piece in The Guardian. “New York State has a record number of homeless families — more than 80,000 people — struggling to survive across the state. And far too many adults in our state do not have the work skills needed for the 21st century economy.”
“We can well afford to pay our current taxes,” they stressed. “And we can afford to pay even more.”
The Equity Factor is made possible with the support of the Surdna Foundation.