Leading Indicators

Income Inequality in Philadelphia – The 2020 Gini Coefficient

With recent discussions of wealth inequality in Philadelphia, as well as a possible wealth tax, it seems timely to measure the city’s levels of income inequality. For this Leading Indicator, we highlight the time-tested Gini coefficient to explore how Philadelphia’s income inequality compares with peer cities as well as across local residential groups.

 

What You Need to Know

  • A staple measure of income inequality, the Gini coefficient ranges from 0 to 1 where “0” indicates perfect equality while “1” signifies complete inequality.

  • As of 2020, Philadelphia has a Gini coefficient of 0.52 – having grown from 0.49 in 2010. Thus, Philadelphia’s income inequality is growing.

  • For the past decade, Philadelphia’s Gini coefficient has slightly outpaced the national average, indicating that Philadelphia’s income inequality is greater than that of the U.S.

  • When compared among the 15 largest U.S. cities in 2020, Philadelphia is both the sixth largest city by population and has the sixth highest degree of income inequality.

  • New York City claims the highest degree of income inequality in 2020 with a Gini coefficient of 0.55, while Columbus, Ohio had the lowest Gini coefficient of 0.44.

  • Philadelphia’s legacy as a historic industrial city that transitioned to a service-based economy is a major contributor to its income inequality.

  • As of 2020, roughly 30.9 percent of Philadelphia households earn between $10,000 and $40,000 a year while only 5.4 percent earn $200,000 or more annually.

  • Philadelphia’s households of color make up roughly 73.1 percent of households earning less than $10,000 a year while only comprising 25.4 percent of those earning $200,000 or more.

  • Roughly 39.4 percent of Philadelphia’s Latinx/Hispanic households earn $10,000 to $40,000 a year.

 

The Gini Coefficient: A Measure of Income Inequality

A staple measure of income inequality in the field of economics, the Gini coefficient (also known as the Gini index or Gini ratio) was developed by the Italian social scientist Corrado Gini to measure the dispersion of a metric, like income, across a population or sample [1]. Ranging from 0 to 1, a “0” indicates perfect equality or that a metric is equally distributed across all individuals in the population or sample (e.g., everyone earns the same income). A “1,” on the other hand, expresses maximum inequality or that the metric only applies to one individual while all others are without (e.g., one person earns an income while all others have no income). The most well-known use of the Gini coefficient is by the World Bank which compares income inequality across nations. To track the growth of income inequality, figure 1 details the Gini coefficients for both Philadelphia and the U.S. in 2010, 2015, and 2020.

 

FIGURE 1 

NOTE: Data were obtained from five-year estimates of the U.S. Census Bureau’s 2006-2010, 2011-2015, and 2016-2020 American Community Surveys.

 

Philadelphia’s Gini coefficient has slightly outpaced the U.S. average since 2010, and it is continuing to grow. Over the past decade, Philadelphia’s Gini coefficient increased by 0.03 from 0.49 in 2010 to 0.52 as of 2020. The Gini coefficient for the U.S. only increased by 0.01 in the same period. It should be noted, due to greater frequency and variability in income-levels across large populations, Gini coefficients for many nations and cities of Europe and North America are only known to show incremental change from year to year [2]. Ideally, however, more equitable economies would see Gini coefficients declining toward 0, while employment and incomes were increasing in tandem, to indicate greater equality across a growing and inclusive workforce. Figure 1 shows, however, that neither Philadelphia nor the U.S. are increasing income equality.

 

Comparing Philadelphia’s Income Inequality

Figure 2 compares Philadelphia’s 2020 Gini coefficient with those of the 15 largest U.S. cities. As of 2020, Philadelphia is both the sixth largest city in the U.S. and has the sixth highest degree of income inequality among its peers. New York City claims the highest degree of income inequality in 2020 with a Gini coefficient of 0.55, while Columbus, Ohio had the lowest Gini coefficient of 0.44. 

 

FIGURE 2 

NOTE: Data were obtained from five-year estimates of the U.S. Census Bureau’s 2016-2020 American Community Survey.

 

Philadelphia’s legacy as a historic industrial city that transitioned to a largely service-based economy is a major contributor to its income inequality. Cities with higher Gini coefficients than the U.S. average are historically older industrial cities that have remained among the largest in the U.S. since the early- to mid-1900s, excluding Houston and Dallas. Many of these cities have higher costs-of-living that are reflected in their income-levels. They are also home to large, impoverished populations which historically struggled to find sustainable employment as local economies shifted from predominantly manufacturing- and production-based economies to service-based economies [3].

 

Large cities with Gini coefficients below the U.S. average are mainly Sunbelt cities or cities of the Southeast and Southwestern regions of the U.S. – excluding Columbus, Ohio. Many of these Sunbelt cities have seen significant population growth, and well as increased service-based employment opportunities, in recent decades [4]. Their degree of income equality, while less than the U.S. average, is still pronounced. It remains lower in these cities, however, because of the decreased cost-of-living when compared to their legacy industrial peers [4].

 

Income Inequality Within Philadelphia

When compared with many of its peers, Philadelphia evidences a higher degree of income inequality. This inequality is even more pronounced among racial and ethnic lines. Figure 3 details the racial breakdown of Philadelphia households across income brackets while figure 4 illustrates the same relationship for the city’s Latinx/Hispanic households.

 

FIGURE 3 

NOTE: Data were obtained from five-year estimates of the U.S. Census Bureau’s 2016-2020 American Community Survey. All racial groups include individuals of Latinx/Hispanic ethnicity.

 

FIGURE 4 

NOTE: Data were obtained from five-year estimates of the U.S. Census Bureau’s 2016-2020 American Community Survey.

 

Both figures 3 and 4 illustrate that the largest proportion of Philadelphia households, roughly 30.9 percent, are within the second-lowest income bracket or earning between $10,000 and $40,000 a year. The smallest share of households, approximately 5.4 percent, earn $200,000 or more within a year. A more equitable distribution would show a more even dispersal of households across income brackets.

 

This distribution should also reflect the racial and ethnic makeup of the city’s population. Instead, households of color predominate in lower-income brackets while white households are over-represented among the highest income groups. Figure 3 shows how households of color make up roughly 73.1 percent of households earning less than $10,000 a year while only comprising 25.4 percent of those earning $200,000 or more. White households, on the other hand, proliferate across all income brackets but are over-represented among the highest income-levels. Similarly, figure 4 demonstrates how the largest proportion of Latinx/Hispanic households, roughly 39.4 percent, predominate within the $10,000 to $40,000 income bracket. The lowest representation of Latinx/Households, approximately 2.9 percent, are found in the highest income bracket of $200,000 or more.

 

Addressing Income Inequality

There is no “quick-fix” solution for addressing income inequality, just as there is no single solution for alleviating poverty. Historically, collective bargaining has been the most effective approach in the U.S. for addressing income inequality, but the labor movement has been in decline for the past few decades. Progressive taxation has been another prevalent policy tool, but the partisan divides in state legislatures have made such approaches infeasible at the state level, prompting many cities to float wealth taxes. Similarly, raising the minimum wage, which has failed to come close to keeping up with inflation at the national level has gained some traction at the state and local levels. It will undoubtedly take a coordinated set of policy tools to move the needle on income inequality.

 

Works Cited

[1] Stokel-Walker, Chris. 2015. “Who, What, Why: What is the Gini coefficient?” BBC News: Magazine Monitor, 12 March. Retrieved from: (https://www.bbc.com/news/blogs-magazine-monitor-31847943).

 

[2] Roser, Max and Esteban Ortiz-Ospina. 2016. “Income Inequality.” Our World in Data. Retrieved from: (https://ourworldindata.org/income-inequality).

 

[3] Sassen, Saskia. 1990. “Economic Restructuring and the American City.” Annual Review of Sociology, 16:465-490. Retrieved from: (https://www.annualreviews.org/doi/10.1146/annurev.so.16.080190.002341).

 

[4] Kinder Institute for Urban Research. 2020. “Large, young and fast-growing Sun Belt metros need urban policy innovation.” Urban Edge, 11 June. Retrieved from: (https://kinder.rice.edu/urbanedge/2020/06/11/urban-policy-sun-belt-states-population-growth-rate-housing-employment).