New York City narrowed the inequality gap between 2014 to 2019, defying a national trend, as the bottom half of earners steadily increased their share of income faster relative to wealthier ones, an analysis of annual state tax data by the Independent Budget Office shows.
According to the IBO, a non-partisan group, city tax filers in the bottom half of the income distribution who made about $4,400 to $37,800 saw their share of income distribution grow from 7.5% to 8.7% between 2014 and 2019. Those earning between $148,200 and $804,300 — who fall within the top 10% of earners — also saw their share increase during that time, but not as fast as the bottom half.
Michael Jacobs and Pooya Ghorbani, two economists at the IBO, provided Gothamist/WNYC with an analysis of tax filing data of New York City residents. Their measure of inequality notably excludes two types of outliers because they distort the data: the top 1% of earners, those making above above $804,300 whose income is largely made up of capital gains that fluctuate based on the stock market’s performance, and the bottom 10%, those whose reported earnings fall below $4,440 but which include wealthy individuals (like former President Donald Trump) who report negative income because they can write off business losses.
The data offers the clearest evidence so far that income inequality began to shrink under Mayor Bill de Blasio, who won election in 2013 under a campaign promise of ending “the tale of two cities.” De Blasio, a two-term Democrat who is reportedly mulling a run for governor, has about a month left in his mayoralty. In recent weeks, he has sought to burnish his legacy and political future by arguing that he has helped bridge the city’s income inequality divide, although he has pointed to little data beyond poverty statistics to support this claim.
There are several de Blasio administration policies that could have contributed to the income gap closing, including a minimum wage hike, rent freezes for rent-regulated tenants, and his universal pre-K program. However, economists also pointed to other factors, like a robust economy and low unemployment, as playing important roles.
However the credit is parsed, the trend under de Blasio represents a startling reversal of four decades of growing or flat income inequality in the city, according to James Parrott, an economist at The New School’s Center for New York City Affairs who studies the local economy and income inequality.
“I think that the degree of improvement in the last several years is historically large, and larger than any period of improvement since the 1960s. That's a long span of time,” Parrott said.
The pattern also bucks a national trend, according to Parrott. His analysis of IRS data showed that income for the bottom 90% of earners fell nationally during this same period.
Economists consider evidence from tax filings to be the most reliable datasets on which to measure income inequality. In 2019, the state received nearly 4 million New York City returns, representing 7 million full-time residents.
The IBO analysis measures income inequality by looking at a ratio of top earners to the income of those in the bottom half of the income distribution, excluding the outliers of each group. A declining ratio indicates that low-income earners had relatively faster income growth.
“When you look at this and similarly defined ratios, you don't get dramatic changes in the number from year to year, but what's important is there's this steady decline from 2014 through 2019, in contrast to increases from 2010 through 2014,” Jacobs said.
Parrott did a separate analysis of the wage share of incomes using the same tax data and confirmed the IBO’s findings. He calculated that the wage share of those in the bottom half of earners—or those making less than $38,000—grew by 15% from 2013 to 2019.
The degree of improvement in the last several years is historically large, and larger than any period of improvement since the 1960s.
Parrott said he considers raising New York’s minimum wage to be one of the most impactful policy tools for reducing income inequality. In 2016, then-Governor Andrew Cuomo signed legislation that approved a phased increase in the minimum wage across New York state to $15 an hour. In New York City, the $15 minimum was phased in and took effect in the beginning of 2019, affecting more than 1 million workers.
Although labor unions were critical to the successful campaign, known as the Fight for $15, de Blasio lobbied for increasing the minimum wage in New York City as early as 2014, proposing that the state allow the city to do so independently. Cuomo rejected the idea, arguing that allowing local governments to set their own wage policies could create a “chaotic situation.”
By pressuring Cuomo, de Blasio was instrumental in pushing the wage plan through, and eventually the fight for higher pay gained traction on a national level, according to Joseph Viteritti, a public policy professor at Hunter College who wrote a book about de Blasio’s political career and his early track record as a progressive mayor.
“If you didn't have the conversation in New York City about a minimum wage, you would have never had a policy in New York state,” Viteritti said. “The governor of New York was not inclined to raise the minimum wage to $15.”
Parrott cited two other labor-friendly policies under de Blasio that he said contributed to a larger wage share for the bottom half of earners: settling municipal union contracts affecting 400,000 workers, and setting a minimum pay standard for Uber and Lyft drivers that raised the pay for 100,000 drivers before the pandemic.
The strong economy was also a factor, according to Parrott. Between 2014 and 2019, private sector jobs in New York City grew at an average annual rate of 2.7%, according to federal data. In the two decades preceding that period, which included two recessions, the rate of growth was 1.2% a year.
The mayor himself has said that the universal pre-K program, which he ran on and implemented in his first year in office, is the policy that impacted income inequality the most. The initiative provided the option of early childhood education to all families, regardless of income.
“When you think about the impact – the money put back in working people's pockets with pre-K – and that's now hundreds of thousands of kids and hundreds of thousands of families that benefit,” de Blasio told reporters last week.
Earlier this month, in what political observers saw as another sign that he was closer to launching a run for governor, de Blasio announced a statewide plan for expanding pre-K and establishing year-round school options to improve outcomes for children and further reduce the burden of families paying for childcare.
But data on how pre-K directly impacted wage and income inequality are difficult to find. The mayor has typically pointed to drops in poverty levels in New York City between 2014 and 2018 as evidence his policies have made a significant impact. The city’s “near poverty rate,” or a family of four earning under $52,566, fell to 41.3% in 2018 from 46.2% in 2014.
Parrott said it was probably too early in New York City to make the mayor’s case on universal pre-K although it provides considerable child-care cost savings for moderate-income families. “It's a sound policy and it will lessen income inequality over time,” he said. “It was never conceived of as a fast-acting thing.”
The mayor has also highlighted his affordable housing program, calling it a “total game changer” for low-income individuals. Over his two terms, he will have created around 200,000 below-market rate units, although his housing plan has been criticized for being a “drop in the bucket” when it comes to the needs of the poorest New Yorkers.
Some critics have argued that de Blasio’s pledge to fix the “tale of two cities” was a misguided goal. They say that cities, like New York, are predisposed to having high income inequality because during good economic times, they will attract the very wealthy and the extremely poor.
“Why do homeless people come here? Because they feel they will get better services than in their home city,” said Nicole Gelinas, senior fellow at the Manhattan Institute, a conservative leaning think tank.
A 2017 study, which examined census data from 2013 to 2016, by the Manhattan Institute using the Gini coefficient, another measure of income disparity, found no statistically significant change in inequality under de Blasio. The author, Alex Armlovich, who now works at the Citizen's Budget Commission, told Gothamist/WNYC that he later did an update looking at 2018 data but found that the pattern was relatively unchanged.
Parrott argued that the data used in that study was not as comprehensive and reliable as tax filing data.
Are there things that the city can do to ameliorate the effects of inequality by giving people more opportunity? Sure.
Some critics of de Blasio will likely remain unimpressed with the new analysis. Gelinas accused de Blasio’s “tale of two cities” campaign of serving up a false promise that implied that all New Yorkers were going to be equal. “Are there things that the city can do to ameliorate the effects of inequality by giving people more opportunity? Sure,” she said. “And, you know, de Blasio is one of many mayors going back a hundred years who have added something to that mix of things.”
De Blasio recently conceded that he was never going to “solve all of the inequality of society” during his time in office.
“Our job was to fundamentally attack them and make a difference,” he said earlier this month.
The mayor then added: “I know for the hundreds of thousands of New Yorkers who have gotten affordable housing, their lives are different. I know the folks who experienced a rent freeze when they needed it, their life was different. For every family that got pre-K or 3K for free, their lives are different and better. All these actions fought inequality.”