Are Cities Concentrating Economic Inequality

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Are Cities Concentrating Economic Inequality?
Mercy Horst EC 428- Final Presentation May 4,
2001 Professor Horlacher
No society can surely be flourishing and happy,
of which by far the greater part of the numbers
are poor and miserable. Adam Smith, 1776
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Traditionally, the largest cities have been in
developed nations. Worldwide, urban populations
are on the rise, especially in the Third World.
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Rapid growth rates mean that by the year 2015,
cities such as Los Angeles, Seoul, Buenos Aires
and Osaka will no longer be among the worlds 15
largest cities they will be replaced by cities
in the Third World.
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Urban populations are on the rise throughout the
world. With this, there is a shift in societal
structures. Cities in the developing world are
dealing with different issues from those of the
industrialized world.

• This presentation will look at urbanization
  trends in
• The United States
• Developing Countries

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Income Inequality in the United States
The number of poor people living in US cities has
been on the rise in recent decades

• Concentrations of poverty in cities in the United
  States has been going on for a while
• The number of poor people living in rural areas
  fell to 31 in 1980 and 28 in 1990, by the early
  1990s, 72 of Americas poor lived in urban areas
• By 1970 56 of Americas poor lived either in
  central cities or in suburbs. However, over the
  next two decades, this number continued to grow

• The poor were becoming increasingly concentrated
  in urban areas, in particular, the urban core.
  The proportion of poor people who lived in
  central cities was 34 in 1970 by 1980, this had
  grown to 39 and grew again to 43 in 1990. At
  the same time, the percentage of poor living in
  suburbs rose in the 1970s but began to decline in
  the 1980s until it reached 29 in 1990

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What is causing the rising inequality in the
United States?

• Computerization of production
• Manufacturing was first hit by computerization
  during the 1970s and 1980s. Older manufacturing
  plants that once provided thousands of well-paid,
  unionized jobs shifted to a capital intensive
  production process that employed far fewer
  workers, but instead were highly dependent on
  computers and robots
• Union membership declined along with
  manufacturing. Between 1969-1989 the share of
  non-agricultural workers in unions fell from 29
  to 16 in the private sector, the number reached
  12, a number not seen since the 1920s
• Services also felt the shock of computerization,
  during the late 1980s and early 1990s, large
  bureaucratic institutions loaded with mid-level,
  white collar workers gave way to reengineered,
  downsized service companies
• This shift saw the loss of many jobs, especially
  for the middle class which has contributed to the
  income inequality in the United States
• Globalization of capital and labor markets
• There is now worldwide competition for funds and
  workers. Capital can now be placed in companies
  and countries that offer higher returns and low
  risks, while labor finds itself hiring where high
  wage workers in developed nations compete
  directly with millions of desperately poor
  workers throughout the developing world
• As manufacturing productivity increased, plants
  that could not compete either closed their doors
  or relocated to low-wage areas overseas
• Fragmentation of consumer markets

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Poverty is Becoming Increasingly Concentrated
Within Cities
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Poverty within cities is becoming more and more
concentrated

• In 1970, 45 of central city poor lived in a
  neighborhood that was not poor, and38 lived in
  poor and 17 in a very poor neighborhood.
  However this has increased significantly.
• By 1990, the percentage of central city poor
  living in non-poor neighborhoods declined to 31.
  People living in poor neighborhoods grew to 41
  and in very poor neighborhoods grew to 28.
• The likelihood of being poor is increasing for
  central city neighborhoods. As of 1990, more
  than two-thirds of all central city poor lived in
  poor or very poor neighborhoods.
• In 1990, in the largest cities in the United
  States, the average poor citizen was living in a
  neighborhood where approximately one-quarter of
  the neighborhood was also poor

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The Poor are becoming increasingly concentrated
in poor neighborhoods
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Social Problems Associated with Concentrations of
Inequality

• Political
• Racial
• Crime

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Political Problems
The separation of the rich and the poor often
leads to a self perpetuating class structure due
to superior services available to the rich.

• The rich often try to protect themselves from the
  economic burden of the poor through the
  manipulation of laws and district lines. If they
  can create separate governmental and
  administrative districts that encompass
  concentration of poverty, and if they can force
  these poor districts to supply and pay for their
  own services.
• Due to the concentration of affluence in certain
  suburbs, these areas have high real estate values
  allowing the rich to tax themselves at low rates
  while offering generous municipal services.
• The concentration of poverty in central cities
  and inner suburbs means that there is a high
  demand for services but not much funding due to
  low property values as a result, higher tax
  rates are needed to support inferior services.
• This creates a self-perpetuating cycle where city
  taxes are raised to maintain the inferior
  services causing families with money to leave the
  area, causing property values to fall, creating
  the need for more tax increases and additional
  middle-class flight which further exacerbates
  the concentration of poverty
• The class differential is carried on to the next
  generation directly through the education system

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Racial Problems
Blacks suffer disproportionately from income
inequality in the US

• Massey found that a history of discrimination in
  bank and real estate industries, combined with
  the persistence of white racial prejudice, and a
  legacy of racially biased public policies, result
  in blacks continuing to be the most residentially
  segregated group in the US
• During the 1970s and 1980s, black poverty rose
  for a small set of racially homogenous,
  geographically isolated, densely settled
  neighborhoods that were not only black but poor.
• 41 of poor blacks in US central cities lived in
  poor neighborhoods, 42 lived in very poor
  neighborhoods these numbers are much higher than
  the rate for whites of 32 and 11 respectively
• In 1980, the 50 largest metropolitan areas had
  64 of poor blacks residents living in
  neighborhoods with a poverty rate over 20
  compared to just 13 of whites

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Blacks continue to be the most residentially
segregated of any minority group.
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Inequality and Crime
Criminal behavior is associated with income
deprivation thus the geographic concentration of
poverty will cause a concentration of criminal
violence in poor neighborhoods

• One study found that in one neighborhood in
  Philadelphia, for every one-point increase in the
  neighborhood poverty rate raises the major crime
  rate by .8 point
• Another study of Columbus, Ohio showed that
  moving from a neighborhood where the poverty rate
  is under 20to a neighborhood where it is over
  40 increases the rate of violent crime more than
  threefold, from around 7 per thousand to about 23
  per thousand.
• It has also been found that many people take on a
  threatening attitude or commit violence
  themselves in order to deter people from being
  violent against them thus creating a
  self-feeding, escalating problem

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The Gini Coefficient

• Gini Coeffients are one of the most common ways
  of measuring income inequality
• Gini coefficients are aggregate inequality
  measures and can vary anywhere from 0 (perfect
  equality) to 1 (perfect inequality)
• A country with a relatively unequal income
  distribution typically lies between .50 and .70,
  while countries with relatively equitable income
  distributions usually lied between .20 and .35

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The Era of Rising Inequality

• The Gini coefficient has been worsening in most
  countries in recent decades
• In most developed countries, Gini indices grew
  between 1980 and 1990, indicating a worsening of
  income inequality. The exception was in Southern
  Europe where incomes were lower and inequality
  was greater to begin with.

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Gini coefficients in many developing countries
are around .5, which is a relatively unequal
distribution
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Urbanization of Developing Countries

• Cities in Developing countries are growing in
  their share of world population
• Cities in poor countries now exceed in total
  population the cities of industrialized countries
• By 2015, their populations will have increased by
  another two billion at which point more than half
  the worlds population, and half the population
  of developing countries will be living in cities
• In 1950, some 275 million people were living in
  third world cities, 38 of the 724 million total
  urban population
• According to UN estimates, the worlds population
  had reached 2.6 billion by 1995, with 66 (1.7
  billion) living in metropolitan areas of
  developing countries

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The majority of growth in urban areas in the
Third World is coming from rural-urban migration.
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Hong Kong offers a dramatic example of poor
residents living in boats with the contrast of
the skyline of the booming city.
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Cities in the Developing World are not prepared
to handle the increase in population

• The cities of the pre-industrial countries are
  not ready to receive this flood of new
  inhabitants.
• Cities to do not have the resources or
  infrastructure to accommodate the growing
  population
• A few important problems include insufficient
  housing, piped water, sewerage, public
  transportation, schools, police protection,
  doctors, hospitals, and other necessary amenities
  and defenses of urban life
• Most cities in the developing world are still
  struggling to accommodate the billion additional
  people who arrived over the past four decades
• In 1985, the World Bank predicted that the
  provision of water and sanitation to the new
  population for the year 2000 would require the
  investment of 1 trillion dollars very little of
  that capital requirement has been met

Cities, once an engine of growth can no longer
provide enough jobs to contain poverty. (Piel 71)
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Cities are no longer able to provide for the
increasing population the way they once could.

• In the past, many of the urban migrants were
  able to find work, an climbed out of poverty into
  the working, middle, or even upper classes.
  However, in the future, poor migrants who arrive
  in the worlds metropolises are likely to stay
  poor
• Cities have the advantage of offering
  cost-reductions due to economies of scale, as
  well as access to social services as well as job
  opportunities, and social infrastructure.
  However, the social costs of the increasing
  overload of housing and social services, in
  addition to increased crime, pollution, and
  congestion, tend gradually to outweigh these
  historical urban advantages
• Former world Bank president Robert McNamara
  expressed concern over this situation These
  sizes are such that any economies of location are
  dwarfed by costs of congestion. The rapid
  population growth that has produced them will
  have far outpaced the growth of human and
  physical infrastructure need for even moderately
  efficient economic life and orderly political and
  social relationships.
• With this rapid spread of urbanization and the
  urban bias in development strategies has come the
  enormous growth of huge slums and shantytowns

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Shantytowns as a Growing Reality

• These shantytowns have appeared in almost every
  city of the developing countries, from the
  favelas of Rio de Janeiro and the pueblos jovenes
  of Lima to the bustees of Calcutta and the
  bidonvilles of Dakar
• These makeshift communities are growing
  incredibly rapidly doubling in size every 5 to
  10 years
• Urban slums now make up over one-third of the
  urban population in all developing countries in
  some cases they account for over 60 of the total
  population
• Most of the incoming population are forced into
  these settlements during the late 1980s, 72 out
  of every 100 new households established in urban
  areas of developing countries were located in
  shanties and slums in Africa that number was 92
  out of 100
• Because shelters do not meet city specifications,
  and are therefore illegal, and therefore ignored
• Shantytowns are increasingly hard to move out of
  30-70 of the first billion newcomers still live
  in the shelters they build and improved upon
• By 2015 at least another 1 billion will make
  their homes in such settlements at which point
  at least 3/8s of the worlds population will be
  living in crowded density in misery and squalor

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Shantytowns
Sanitation problems

• In older settlements in Latin America, where
  population is 70 urban, 30 of households lack
  piped water and sanitation
• 50 of cities in Asia lacked those amenities and
  in Africa, where the cities are smaller but the
  fastest growing, 70 lacked amenities
• For the most part, the supply of water to
  shantytowns is unsanitary and intermittent
  Because of a lack of sanitation, Shantytown
  dwellers must live with their own excrement
• People living in shantytowns, especially the
  children are often infected and infested with
  more than one virus, bacteria, or parasite

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Shantytowns
Policy Problems Often poor planning or
allocation of space is the cause of these pockets
of poverty in urban areas

• In metropolitan Cairo, a population of 10 million
  is trying to cope with a water and sanitation
  system built to serve 2 million
• Misguided government policies regarding urban
  planning often means that 80 or 90 of new urban
  housing is illegal. For example, colonial
  building codes in Nairobi, Kenya make it
  impossible to build an official house for less
  than 3500. The law also requires every dwelling
  to be accessible by car. As a result two-thirds
  or Nairobis land is occupied by 10 of the
  population while 100,000 slum dwellings cannot
  legally be improved. Similarly in Manila,
  Philippines 88 of the population is too poor to
  be able to buy or rent an officially legal
  house
• Many immigrants find that most land in urban
  areas is already owned by someone else
• Squatters have seen their makeshift dwellings in
  city after city be dismantled and burned by the
  authorities
• To avoid loosing their homes, settlers turn to
  places unfit for human habitation, the lowlands
  and even wetlands around the city or hillsides
  too steep for ordinary buildings
• Settlements have to put up with floods in the
  lowlands and with landslides on the hillsides.
• An extreme example is in Rio de Janeiro, the roof
  of the lower house often serves as the floor of
  the house above, as may as nine stories can be
  counted up a steep hillside- all subject to
  collapse in a common catastrophe

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Unemployment
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Informal Work in Urban Areas

• The legal labor market of most cities in
  developing countries is unable to absorb the
  growing population looking for work
• As a result, an informal sector began to emerge
  which has served as a temporary solution to the
  growing unemployment problem
• First recognized in the early 1970s, this
  unorganized, unregulated, and mostly legal but
  unregistered informal sector helps to employ the
  growing population that does not appear in the
  official sector
• Most new entrants seemed to create their own
  employment or to work for small-scale family
  owned enterprises
• The informal laborer tends to be self employed,
  uneducated, unskilled, and lack access to
  financial capital. As a result, worker
  productivity and income tend to be lower in the
  informal sector than in the formal sector

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The Informal Sector
Evidence indicates that the informal sector plays
a large role in the urban economy of developing
countries.
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There are both advantages and disadvantages to an
informal labor market
Pros
Cons

• Due to the low capital intensity, only a fraction
  of the capital needed in the formal sector is
  required to employ a worker in the informal
  sector, offering considerable savings to
  developing countries often plagued by capital
  shortages
• Provides access to training and apprenticeships
  at lower costs than formal institutions and the
  formal sector, allowing the informal sector to
  play an important role in the formation of human
  capital
• Increased likelihood to adopt appropriate
  technologies and make use of local resources,
  allowing for a more efficient allocation of
  resources
• The informal sector plays an important role in
  recycling waste materials, such as the collection
  of goods ranging form scrap metals to cigarette
  butts, which are then used in the industrial
  sector or provide basic commodities for the poor
• Ensuring an increased distribution of the
  benefits of development to the poor, may of whom
  are concentrated in the informal sector
• Avoid bureaucratic red tape associated with
  registering new business - delays of up to 240
  days in Ecuador, 310 days in Venezuela, 525 days
  in Guatemala. Brazil, Mexico and Chile all
  require more than 20 applications before a
  company can be approved for business, which not
  only cause excessive delays, but can inflate the
  cost of doing business by up to 70 percent
  annually

• There is a strong relationship between
  rural-urban migration and labor absorption in the
  informal sector-by promoting the informal sector,
  countries may encourage more people to migrate to
  urban areas in search of work, thus putting more
  pressure on already strained systems
• Potentially creating further environmental damage
  from a highly concentrated informal sector in the
  urban areas
• Participants in the informal sector not afforded
  the protection of the formal sector in terms of
  job security, decent working conditions, and
  old-age pensions (though these conditions are
  also often scarce in the formal sector as well)

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Conclusion

• Urbanization is creating different problems in
  the United States and the Developing World
• In both places, it is concentrating inequality
• This has led to various social problems that need
  to be addressed, because urbanization is
  predicted to continue, especially in the Third
  World