Before one achieves truth, one entertains hypotheses. Before one entertains hypotheses, one explores the terrain. Before one explores the terrain, one has a hunch…because you have to start somewhere.
Hunch: inequality in itself doesn’t have much to do with well-being.
Exploration: limit data set to US states. Compare state levels of inequality and possible correlates of well-being. If there’s any pattern, it’s most likely to be apparent at the extremes of inequality, i.e., the least and most unequal state.
Part I of this series considered the least unequal states. Now we’ll look at the most unequal states. Without further ado:
What I see is southern states, rich states, and New Jersey. Compared to other US states, all but Florida have high unemployment and all but New Jersey and Connecticut have high poverty rates and low median household income. The southern states are Republican, the rich states and New Jersey are Democrat.
High income inequality often happens when a relatively small group of the very rich accounts for a big part of a state’s household income. This seems to be the case with Florida, California, Connecticut, and New York, which have slightly over half of the country’s billionaires. Combine pockets of wealth with lots of poor people and you’ve got even higher inequality. This seems to be the case for all the above states, except for Connecticut and New Jersey.
The numbers on New Jersey initially puzzled me. According to the well-respected WalletHub research group, New Jersey is the most unequal state in the nation yet it has a relatively low poverty rate and relatively high median income. I figured there must be a lot of very rich people in New Jersey, even if few of them are billionaires. After all, Manhattan’s right next door and the commute isn’t bad. Sure enough, a few seconds of Googling confirmed my hunch. As it turns out, New Jersey is home to some of the wealthiest communities in the country.
But none of this has bearing on whether high levels of inequality causes high unemployment or poverty in any of these states. To establish causation, you have to have some idea of causal mechanism - that is, something inequality does that increases unemployment and poverty. And there isn’t anything about inequality in general that increases unemployment and poverty. The existence of some very rich people does not in itself make other people unemployed or poor. For example, consider China, where much of the population continues to enjoy rising incomes despite a large increase in inequality.
I admit that in some big US cities, the rich (with the help of NIMBY activists) are driving up the cost of housing, which increases local poverty. But this situation mostly applies to California and New York and doesn’t explain why the other unequal states are doing so poorly. More exploration needed.
Links:
https://wallethub.com/edu/happiest-states/6959/
2017 state well-being rankings - Gallup-Sharecare Well-Being Index
https://www.bls.gov/lau/lastrk17.htm
https://www.weichert.com/articles/top-10-wealthiest-cities-in-new-jersey/