The US as a Tale of Two Countries Part II: Where Wealth Meets Income

Carlo Carrascoso Analysis, Employment, Income & Wealth, Region, Topics, United States

Wealth is more unevenly distributed than income. But do the wealthy and high income earners live side by side while the have-nots and the low income earners live next to each other? The answer is: often, but not always.

Issues of economic gain and fairness have dominated the discussion around income and wealth inequality in this year’s run-up to the presidential elections. Substantial growth in the last thirty years has led to an increase in the standard of living for many Americans, but is this justified by a corresponding increase in financial inequality? How does this inequality play out geographically? In November 2011, we reported that the income rich and poor live geographically separated lives in the sense that they each concentrate in certain areas and that these areas are considerably buffered from one another so that while the rich predominantly live in coastal urban regions, lower-income earners tend to live in more rural areas.

For this report, we provide additional levels of analysis by mapping the spatial distribution of wealth and comparing it with the spatial distribution of income. In doing so, we contribute to our understanding of the geography of affluence and poverty.

The major findings of this study indicate that, as expected, the rich and the wealthy generally concentrate in the same regions of the country – after all, many high income earners are also wealthy. But whenever differences in the geographic concentration of income vs. wealth exist – for example, when high income earner concentrations are located in less-wealthy areas – these higher-income earners tend to live in cities, while lower-income earners who live in areas with higher wealth levels are found in less populated, often rural regions. Consequently, taxes on income may encroach more on urban rather than rural economies and vice versa for wealth taxes.

Wealth Distribution
We start our analysis with a look at the distribution of wealth and income across US zip codes. We calculated the concentration of rich versus poor households in each zip code and label a zip code rich in terms of wealth or income if the share of households that are in the top 10% households in the US exceeds 10%. We call a zip code somewhat concentrated in terms of riches (greenish yellow on the map) if this share of households is between 10 and 15% and highly concentrated (gold) if this share exceeds 15% in a particular zip code.

On the other hand, we label a zip code poor in terms of wealth or income if the share of households that are in the bottom 25% households in the US exceeds 25%. A zip code is somewhat concentrated in terms of poverty (light purple) if this share of households is between 25% and 37.5%% and highly concentrated (dark purple) if this share exceeds 37.5% in a particular zip code.1

The following map shows the wealth distribution across zip codes in the US:

US Share of 10% wealthiest and 25% least wealthy households by zip code

For direct comparison, we present the income distribution across the United States:

US Share of 10% highest and 25% lowest income earners by zip code

The wealth distribution map shows patterns that are similar, but not identical to the income distribution map.2 Practically speaking, the rich generally live in the same areas by either measure. Wealthy households are more likely to be found in densely populated areas; however, a somewhat higher share of these households can be found in less populated areas as compared to high-income households. Differences between the geographic concentration of wealth and income are more pronounced for the lower income and wealth categories.

Wealthier zip codes represent around 21% of all ZIP codes and roughly one third of the total US population. As the following table reveals, they are located predominantly in the more densely populated areas, which we define as those with a population greater than 500 people per square mile. All others are called sparsely populated.

Table 1: Wealth and income concentration across zip codes, by population in those zip codes, and by population density

* These are zip codes in which both a high share of wealthy / high income and a high share of low wealth / income households can be found.

Again, these wealthier areas are separated by buffer zones (zip codes that are colored light grey) which are found mostly around the major metropolitan areas except for California which has few, if any, buffer zones. These zones represent about one third of all zip codes but only 22.3% of the total US population live in these areas. They cover about 19% of the population living in densely populated areas but about a third of the population living in sparsely populated areas. This is in contrast to the geographic distribution of income, where those shares are more similar at around 22% and 25%, respectively. In short, buffer zones are larger and less urbanized in the geographic distribution of wealth than in the geographic distribution of income.

Zip codes with a higher concentration of less-wealthy households (colored purple in the map and the table) cover about 45% of all ZIP codes and about 44% of the total US population. While the share of the population living in those areas is roughly the same in terms of wealth and income, there is a lower share of zip codes, a higher share of population in urbanized areas, and a lower share of population in the less urbanized areas that fall into this wealth versus the corresponding income category.

As for the share of areas with somewhat higher concentration of lower income or wealth (light purple), and the population represented therein, it is almost the same in densely and sparsely populated areas, and they are likewise almost the same as for income distribution. As such, the differences must all come from the areas with a substantially higher concentration of lower income or wealth households (dark purple). Indeed, for these areas the differences are quite stark.

Finally, while small in numbers, there are zip codes where we find higher than average shares of rich and poor, both defined in terms of wealth and income. Those zip codes are shown in red in the table and map and are roughly of the expected order of magnitude.

However, what is quite interesting is their relative size. First, there is a larger share of those zip codes when looking at wealth versus income – in fact, it is twice as high and twice the share of the population lives in those zip codes. Moreover, in both categories they are predominantly urban: four out of the 4.5 million people living in high income disparity zip codes live in urban areas. For wealth, these numbers are 8.5 and 9.5 million, respectively. This means that only about half a million households in the US in rural areas experience high income disparity within their zip code, and only about one million experience high wealth disparity. Above average levels of co-located wealth and income disparity are a rare phenomenon in the US in general, but slightly more frequent in cities. Whether this may have contributed to why the “Occupy” movement has formed only recently and has started in cities deserves further scrutiny.

Wealth Concentration vs. Income Concentration
Where do we find places of income and wealth disparity? In order to find answers to those questions we will map out those differences below. To simplify this analysis, we split the “red” category: If there was a higher relative share of rich versus poor, we counted this zip code as rich and vice versa. Moreover, we will only report those zip codes as different if they actually fall into a higher concentration category i.e. if there is an above average concentration of the top 10% households in terms of wealth, that is 10-15% of all households belong to the top 10%, only if a zip code falls into the next higher income category (more than 15% of households are in the top 10% income category) would it be labeled as higher income than wealth concentration.

The following map and table show the distribution of wealth concentration relative to income concentration. Brown areas indicate higher concentration of wealth than income, while marine areas indicate higher concentration of income than wealth.

US Concentration of income vs wealth by zip code

Table 2: Wealth vs. Income Concentration


This map may suggest that higher concentration of wealth vs. income is the rule rather than the exception due to the existence of large brown-colored areas. However, this is not supported by the data. The concentration of wealth vs. income is more often equal than not. White colored areas, which are zones of the same concentration of wealth and income, comprise more than half of all zip codes and cover almost two thirds of the total US population and are roughly evenly split between higher and lower densely populated areas. Many city centers and the Mississippi river basin share this characteristic. Inspection of either the wealth or the income distribution map confirms that city centers are often rich areas both in terms of wealth and income, while the Mississippi river basin has high concentrations of low income and low wealth households.

Brown colored zones, or zones where there is a higher concentration of wealth vs. income, represent a little more than one third of all zip codes but cover only less than a fifth of the total US population. They are found especially in sparsely populated areas such as upstate New York, Montana, Idaho, and some Midwest and Southern States.

Marine colored zones, or zones where there is a higher income vs. wealth concentration comprise less than a tenth of all zip codes but almost a fifth of the total US population. These are located in densely populated areas on the coast and in the Mountain states. Interestingly, many city centers, if not white, are marine-colored. These include, among others, Denver, Minneapolis, Los Angeles, San Francisco, the DC-Boston corridor, New York City and major Texas metro areas.

Income and Wealth Concentration by Wealth Category
Differences in income versus wealth are of special interest as they may mark transient states of development. For example, high income households may accumulate income and thus become wealthy. To identify those areas, we would look for high income concentration combined with low wealth concentration, colored in light-blue on the following map.

US Concentration of income vs wealth by zip code and wealth category

As it is apparent from the map, only few such light-blue colored areas exist. However, as table 3 below reveals, while about five percent of zip codes fall into this category, 13% of the US population lives in these areas. This is in contrast to the five percent of the population who live in low wealth areas with even more low income households (dark blue) – but these cover three times as many zip codes. Nonetheless, these dark blue areas should be of special concern as they mark geographies at the lower ends of the income and wealth distribution.

Table 3: Wealth vs. income concentration by wealth category


Generally, the findings in this section reinforce the analysis previously undertaken. While there are much fewer gold, white and light blue zones than there are orange, gray and solid blue ones, the total population living in the former group is higher than the population living in the latter group of zip codes. The coverage of densely versus sparsely populated areas reveals why.

Greater income than wealth concentration is an urban phenomenon while greater wealth than income concentration is a more rural phenomenon as illustrated in table 3. Similarly in the group where income concentration equals wealth concentration (the biggest group of all, covering more than half of all zip codes and almost two thirds of the total population), we see that for the top 10% wealth category, this is a phenomenon of densely populated areas while the other wealth categories are more often present in rural areas.

But how do the wealthier areas fare versus the not so wealthy areas? We reshuffle the rows of the previous table to analyze this question:

Table 3: Wealth vs. income concentration by wealth category (changed row order)


We will first analyze areas where we find an above average concentration of the bottom 25% households in terms of wealth. Within this group, light blue zones (where there is a higher concentration of income as compared to wealth) are more common in highly populated areas, are largely absent from the East and are somewhat more common in the West. They represent only 5.2% of all ZIP codes but 13.0% of the total US population.

Within the same group, dark blue zones represent areas with high concentration of the bottom 25% income households. They account for 14.5% of all zip codes, but only5.4% of the total US population. They are located mostly in lower densely populated, rural areas.

Next we study areas where mostly “middle wealth” families live, that is, there is neither an above average concentration of the top 10% wealthy households nor an above average concentration of the bottom 25% households in terms of wealth.

White zones which are areas of higher income than wealth concentration are a rarity, representing only 1.1% of all zip codes and 2.4% of the total US population. They can mostly be found in proximity to major cities. Its prominence around Minneapolis is interesting to note and deserves further analysis.

Within the “middle wealth” group, dark gray zones represent areas with concentration of lower income household categories as compared to this wealth category. They account for 14.8% of all zip codes, but only 6.1% of the total US population. They are predominantly a northwestern phenomenon – with an interesting ring around Minneapolis again. This area exhibits a particularly regular pattern with the Minneapolis city center in light grey followed by a ring of white, a ring of light grey again, and then a ring of dark grey, indicating a spatial allocation of income concentration first higher, than equal, and finally lower than the corresponding gradient in wealth distribution in this area.

Finally, we analyze areas where we find an above average concentration of the top 10% wealthy households. Within this top wealth concentration category, gold zones have a higher income than wealth concentration and are again a near-city feature. Not surprisingly, the area west of New York City, Atlanta, parts of Minneapolis, Los Angeles and San Francisco are of this color. Collectively, these zones account for 1.5% of all zip codes and 3.7% of the total US population.

Orange zones represent areas where there is a higher concentration of wealth than income. They can be found in the greater Atlanta region, Southern Idaho and scattered parts of the Midwest, Idaho and Arizona. They account for 7.2% of all ZIP Codes and 6.3% of the total US population. Interestingly, while gold zones can be found more in densely populated areas, orange zones can be found more in sparsely populated and perhaps rural areas.

For California, the state is generally a light gray area with similar concentrations of income and wealth. As far as the Bay Area is concerned, there are higher income (as compared to wealth) concentrations in Silicon Valley, the North Bay, the East Bay and the northern part of the Peninsula. For the Greater Southern California region, higher income vs. wealth concentration areas exist in coastal Santa Barbara and some portions of coastal Los Angeles and San Diego. Inland areas have a greater incidence of higher wealth than income concentration.

Policy Implications
Wealth and income are neither evenly, nor equally or similarly distributed, not even in space. Whenever differences exist, income is more concentrated in cities while wealth is more concentrated in less densely populated places. The dominance of darker colors (dark blue, dark grey, and orange) in the last map clearly shows this. While interesting in itself, this has a few important policy implications. Income can lead to future wealth (through savings) and wealth can lead to future income (through investment), with the second channel being harder to achieve in most cases. Thus, the predominance of dark colors in rural America may not bode well for those areas. Our analysis provides a first look into how to identify possible problem areas in this context on a national scale with simple geographic tools. But the policy implications may be even more direct: changes in tax policy, namely income, wealth, and inheritance taxes, may have different effects on regional economies: Notwithstanding that all three types of taxes are mostly born by city-dwellers, higher income taxes tend to hurt city economies, while higher wealth and inheritance taxes tend to hurt more rural economic areas.

1 In essence, we display only the upper tails of two distributions drawn from the same population: the distribution of zip codes with shares of households below a certain wealth or income threshold, and the distribution of zip codes with shares of households above a substantially higher wealth or income threshold. Since the two distributions have very small overlap in expectation, this allows us to map the upper tails of both distributions within the same map.

2 Note that this income distribution map is not identical to the one published in November 2011. The reason is that we used the federal poverty levels as the cut-off for the earlier map, while we used the bottom 25% as benchmark for this map since poverty levels based on wealth are not well defined and we wanted to make the current income distribution map comparable to the wealth distribution map.

[divider]

Notes:
The Income distribution cut-offs are as follows:


The Wealth distribution cut-offs are as follows:

These numbers are from linear interpolation between wealth and income classes and generally correspond to other wealth and income studies (e.g. Wolff 2007)

Download this Report

Where wealth meets income 2_27_2012

Additional Maps for Southern California

Southern California Share of 10% wealthiest and 25% least wealthy households by zip code

Southern California Share of 10% highest and 25% lowest income earners by zip code

Southern California Concentration of income vs wealth by zip code

Southern California Concentration of income vs wealth by zip code and wealth category