Scaling of Inequality: Urbanization Favors High Wage Earners

Abstract

As cities increase in size, total wages grow superlinearly, meaning that average wages are higher in larger cities. This phenomenon, known as the urban wage premium, supports the notion that urbanization and the growth of cities contribute positively to human well-being. However, it remains unclear how the distribution of wages changes as cities grow. Here we segment the populations of U.S. cities into wage deciles and determine the scaling coefficient of each bracket's aggregate wages versus city size. We find that, while total wages of all these categories grow superlinearly with city size, the effect is uneven, with total wages of the highest wage earners growing faster than all other wage brackets. We show that this is partly due to the predominance of high-wage jobs in larger cities. Thus, the effects of urbanization are mixed -- it brings higher average wages but with increasing inequality, thus inhibiting prospects for long-term sustainability.

Keywords: inequality, urban scaling, power-law, urbanization, sustainability

JEL Classification: J10, R30, D30, D63