by Richard Florida and Charlotta Mellander
This paper examines the geographic variation in inequality. It distinguishes between two distinct kinds of inequality – wage inequality and income inequality. Wage
inequality is closely associated with skills, human capital, technology and metro size - in line with the literature on skill-biased technical change. Income inequality across metros is instead more closely associated with race and poverty as well as with lower levels of unionization and lower tax rates. This suggests that income inequality is a product not only of skill-biased technical change, but also of the enduring legacy of race and poverty at the bottom of the socio-economic order, as well as the unraveling of the post-war social compact between capital and labor. The two types of inequality are quite different. Wage inequality explains only 16 percent of income inequality across metros, according to our analysis.