The rotten Big Apple

New York City has extreme wealth and extreme poverty. Today, the wealthiest 1 percent of city residents has 44 percent of all income in the city, a share nearly four times as great as 30 years ago. Over the past three decades, the bulk of economic gains in the United States and New York has accrued to those at the very top of the income pyramid leaving very little for the rest. New York State is the most polarized among the 50 states, and New York City is the most polarized among the 25 largest cities in the United States. In New York City, there are about 34,500 households, representing about 90,000 people, in the top 1 percent. On average, these households have annual incomes of $3.7 million. At the same time, about 900,000 people in New York City -- about 10.5 percent of city residents -- live in deep poverty. Deep poverty is half of the federal poverty line; for a four-person family, that means an income of $10,500. An annual income of $3.7 million translates into a daily level of $10,137 -- more than the average annual family income of those living in deep poverty. According to state tax data, half of the households in New York City have annual incomes below $30,000, an amount that the top 1 percent receives over the course of a holiday weekend. If New York City were a nation, its level of income concentration would rank 15th worst among 134 countries, between Chile and Honduras.

In New York City in 1980, the share of all incomes going to the top 1 percent was 12 percent -- more or less in line with the rest of the U.S. But by 1990 the top 1 percent's share in New York City had risen to almost 20 percent, climbing to 44 percent in 2007, almost double the historically high national level of 23.5 percent. Over the period from 1980 to 2007, when inflation-adjusted income in New York state grew an average of 2.1 percent a year after adjusting for population increase, incomes for those in the bottom half of the income spectrum (incomes below $33,000) generally declined. Incomes of people in the middle-range (incomes from $33,000 to $176,000) rose but at only a fraction of the pace of total income growth. Meanwhile, the real incomes of those in the top 1 percent (incomes over $580,000) grew 7 percent annually, over three times as fast as overall income growth. The rest of those in the top 5 percent (incomes from $176,000 to $580,000) saw their incomes rise a little faster than the pace of total income growth. In New York State, the top 1 percent pays a smaller share of their income in state and local taxes than all of those less well off, from the upper-middle, to the middle, to the poor. The story is similar in New York City. While the top one percent has 44 percent of city income and pay slightly over half of all local personal income taxes, they account for only one-third of total New York City tax revenue including personal income, city sales and residential property taxes.

The economic expansion from 2004 to 2007 was the first in which family incomes and median wages adjusted for inflation did not rise over the cycle to reach the peak of the previous business cycle. Despite economic growth, many Americans never saw their income return to the levels they had reached in 2000. Faced with this, families turned to debt, using credit cards and home equity borrowing to sustain their living standards. The crash of the financial and housing bubbles destroyed trillions of dollars in retirement and college savings that had been accumulated by middle- and low-income Americans, and decimated the value of their homes. Most New York City workers and their families have experienced very little real income or wage growth over the past two decades. For example the inflation-adjusted median hourly wage fell by 8.6 percent from 1990 to 2007. Although productivity has grown significantly over the past 15 or so years, median hourly compensation has not -- for either group, college educated or high school educated

It is often argued that skills-based technological change largely explains the trend toward greater income polarization. According to this reasoning, the steady advance of technological change raises skill requirements. As a result, those who pursue higher education and obtain the skills needed to master new technologies receive greater economic rewards. Those lacking higher education see the demand slacken for their limited skills and their wages fall accordingly. But it does not account for the intensified degree of income concentration that has taken place. One third of New Yorkers aged 25 to 64 in the workforce now have a four-year college degree or better, a considerable increase since 1990. Despite that, income gains have been concentrated among a much smaller segment of the population. In New York City, inflation-adjusted annual earnings of college-educated young workers have fallen 6 percent from 1990 levels. In addition, among the well-educated those with the highest incomes do not have the best education. A college degree, or even an advanced degree, does not guarantee anyone who obtains one a seat in the top 10% of earners.In fact, it's pretty easy to see that education isn't the answer to solving the unemployment problem if you make one key assumption: the unemployment problem is cyclical, not structural. This means that those unemployed today will eventually be able to find jobs in the respective industries, relying on their current skill sets. If the problem was structural, then specific dead industries segments would be responsible for the high unemployment problem, and those workers would need to develop other skills to find new work.

Something else must be at work since education, however important on an individual level, simply cannot serve as a compelling explanation for increased income concentration. Jacob Hacker and Paul Pierson argue in their book, "Winner-Take-All Politics", that national policies allowed the purchasing power of the minimum wage to seriously erode and that reduced the power of labor unions also have made a significant difference in depressing wages for middle- and low-income workers. Most income inequality today is due to a handful of earners at the top earning a lot more than everybody else, and that's not because they are the only ones who are well-educated.

Taken from here and here