This is a summary of the proceedings of the conference "Unequal incomes, unequal outcomes? Economic inequality and measures of well-being." The conference was held at the Federal Reserve Bank of New York on May 7, 1999. The conference was organized to focus on the evolution of more direct measures of the material well-being of Americans. Of particular concern was the impact of income inequality on trends in health, housing, and crime victimization. Conference participants also examined some of the changes in policymakers' responses to these trends, especially in the areas of education financing and local governance. Finally, the participants discussed efforts to evaluate the social consequences of policy reforms and offered some guidelines on the best direction for future research and policy initiatives.Income distribution ; Public policy

Barbara L. Walter

Chinhui Juhn

Erica L. Groshen

James A. Orr

English

Research Papers in Economics

FRBNY ECONOMIC POLICY REVIEW / SEPTEMBER 1999 3
Summary of Observations 
and Recommendations
Erica L. Groshen, Chinhui Juhn, James A. Orr, and Barbara L. Walter
At last year’s Federal Reserve Bank of Kansas City sym-
posium on income inequality, Alan Greenspan suggested
that measures of income changes, however reliable, cannot
fully explain trends in the material or economic well-being
of the population. “Ultimately,” he noted, “we are inter-
ested in whether households have the means to meet their
needs for goods and for services, including . . . education and
medical care, which build and maintain human capital.”*
With these observations in mind, the Federal
Reserve Bank of New York organized this conference—
“Unequal Incomes, Unequal Outcomes?”—to focus on the
evolution of more direct measures of the material well-
being of Americans. Of particular concern was the impact
of income inequality on trends in health, housing, and
crime victimization. Conference participants also examined
some of the changes in policymakers’ responses to these
trends, especially in the areas of education financing and
local governance. Finally, the participants discussed efforts
to evaluate the social consequences of policy reforms and
offered some guidelines on the best direction for future
research and policy initiatives. 
UNEQUAL OUTCOMES
HEALTH
Both Barbara Wolfe and Arline Geronimus focused on
health as a direct measure of economic well-being that
effectively draws attention to those suffering the worst out-
comes. Specifically, Wolfe spoke about the strong link
between poverty and health. According to her, in 1994
only 10 percent of children under age five in families making
$35,000 or more were in less than very good or excellent
health. By comparison, one-third of young children in
families with income below $10,000 were in less than very
good health. Moreover, in recent years the number of poor
children whose health is fair or poor has increased relative
to the number of nonpoor children in these same health
categories. In 1987, for every nonpoor child with health
problems, there were close to two children in poverty in
poor health; by 1996, that ratio had risen to 2.7. 
Geronimus identified a set of young people at
particular risk of high mortality rates. She observed that
in some U.S. communities—especially urban areas in the
North—young people cannot expect to survive through
middle-adulthood. Whites generally fare substantially
better than African-Americans, yet whites in poor neigh-
borhoods in northern cities experience mortality rates
roughly comparable to those of African-Americans nation-
wide. Furthermore, among the urban African-American
poor, mortality rates worsened relative to those of
whites from 1980 to 1990. Geronimus also indicated
that circulatory disease—not homicide—has been the most
important contributor to the higher mortality rates
across all poor populations.4F R B N Y  E CONOMIC POLICY REVIEW / SEPTEMBER 1999
Examining health issues in a special address to the
conference, Kevin Thurm noted some other disturbing
statistics. Thurm observed that infant mortality rates for
African-Americans are twice as high as they are for white
Americans; Chinese-Americans are four to five times more
likely to suffer from liver cancer than other Americans; and
Latinos and Native Americans develop diabetes at a rate
twice and three times the U.S. average, respectively.
HOUSING
In the session on housing, James Orr and Richard Peach
examined trends in housing outcomes by income group.
Orr and Peach indicated that there has been a substantial
improvement in the physical adequacy of the housing stock
over the past few decades, particularly for households in the
lowest income quintile. Neighborhood quality for all
income groups has also improved, although sharp differences
in quality continue to exist across the groups. In one
important respect, however, lower income households are
worse off than before—housing costs now absorb a larger
share of their income. 
Joseph Gyourko and Joseph Tracy reported that the
cost of good housing has risen for low-income individuals.
The National Association of Realtors affordability index
shows that affordability conditions are better today than at
any time in the past twenty-five years. However, Gyourko
and Tracy’s analysis suggests that this finding may not
hold for low-skilled workers at the bottom of the income
distribution. The real incomes of these households have not
fully recovered to the levels reached before the 1990-91
recession, yet the constant-quality price of the housing
bundle they typically consume has continued to rise in the
1990s. Therefore, to afford a single-family home, these
households must be increasing the number of hours
worked or shifting down to lower quality housing.
CRIME
Turning to another measure of well-being, Steven Levitt
examined the changes in the relationship between income
and crime victimization over time. He argued that the poor
suffer disproportionately more from property crime today
than they did twenty years ago, possibly because of the
increased reliance on theft-prevention devices by higher
income groups. Levitt also indicated that, in stark con-
trast to property crime, homicide appears to have become
more dispersed across income groups, at least based on
neighborhood-level data for Chicago. For whites, neigh-
borhood median family income is no longer a predictor of
homicide victimization rates—a factor that may explain
the increase in the fear of crime across income levels when
the crime rate has actually fallen sharply. For blacks, the
link between income and crime victimization is found to
be only one-third as strong as it was in 1970.
POLICY RESPONSES
Several speakers looked at policy responses to the widen-
ing of income inequality in state and local communities.
Much emphasis has been placed—correctly so, according to
conference participants—on improving education as a way
to increase the mobility of disadvantaged Americans. One
policy strategy adopted by states has been school finance
reform, aimed at providing greater equality in the caliber
of education received.
Thomas Downes and David Figlio examined the
empirical evidence on the relationship between school
finance reform and student outcomes, reviewed the eco-
nomic literature in this field, and presented new evidence
of the effects of reform on community and school composi-
tion. They argued that if one’s goal is to reduce income
inequality substantially, one should not look to school
finance reform as a particularly effective policy instrument.
Even the most optimistic estimates of the impact of school
finance reform on the distribution of student performance
indicate that these effects are relatively small. Furthermore,
Downes and Figlio noted that these small gains may come
at a cost—the movement of higher income families into
private sector schools, a development that would lead to
less diversity within the public schools. 
The papers by Edward Glaeser and Matthew Kahn
and by Edwin Mills examined the extent to which local
government policies can reduce the effects of rising income
inequality. Glaeser and Kahn contended that the future
scope of city-based redistributive policies is limited. An
important way in which policymakers work to reduceFRBNY ECONOMIC POLICY REVIEW / SEPTEMBER 1999 5
inequality is by redistributing income from the wealthy to
the poor, channeling income tax revenue into spending on
welfare and other services. The authors suggested, however,
that New York City and other cities have had to scale back
their redistributive policies. New York City’s evolution
from a manufacturing city to a service city accounts for
more than one-third of the reduction in redistribution,
because businesses in the service sector are more mobile
and are therefore harder to tax than those in manufactur-
ing. In addition, Glaeser and Kahn documented a more
general decline in the relationship between land area and
redistribution. In 1970, cities with greater land area
tended to redistribute more income, but by 1990 this
connection was no longer evident. Glaeser and Kahn
attributed this change to an erosion in the market power of
large cities and observed that increased mobility and the
existence of edge cities have contributed to a decline in the
monopoly power once enjoyed by large cities.
Using a slightly different approach, Mills consid-
ered not only the competition between cities, but also the
competition between cities and the surrounding areas—the
suburbs. He noted that rising income inequality tends to
lead to greater income disparity between the suburbs and
the central cities because the rich are more likely to move
to the suburbs. In addition, business suburbanization has
occurred because modern transportation and communica-
tion technologies have reduced the costs of moving people,
goods, and messages over considerable distances. Moreover,
some central business districts have become so large as to
exhaust the advantages of locating there. However, Mills
suggested that the movement of businesses away from central
cities began to change around 1996. Tighter labor markets
have induced U.S. businesses to locate in central cities
for the same reason that these businesses have been
going to Mexico and East Asia—namely, the availability of
relatively low-wage workers. Mills also cited the dra-
matic fall in central-city crime rates in the 1990s and new
legislation allowing cities to limit “brownfields liability”—
the liability of businesses for environmental damage that
occurred before their occupation of a site—as developments
that have made it easier for businesses to return to the
central cities.
FUTURE CHALLENGES
Most of the papers and discussions underscored the challenges
faced by economists and others who undertake to measure
well-being and inequality and to identify inequality’s causes
and effects. The presentation by Marcia Meyers and Irwin
Garfinkel addressed some of these challenges. Their project—
the New York City Social Indicators Survey (SIS)—uses social
indicators to track economic well-being and inequality. By
pushing beyond the limitations of current data sources, SIS
will enable the authors to collect the data necessary to define
inequality in concrete terms and evaluate whether New York
City is becoming more or less unequal. Significantly, it
will also shed light on what effect government policies
have on inequality’s magnitude and consequences. 
In another examination of policy challenges,
Katherine McFate emphasized that we must do more than
simply worry about the effects of poverty on those Americans
who fall below some minimum income level. Rather, policy in
the future should focus more broadly on the fact that too
much inequality of income and wealth is, in and of itself, a
serious problem. In McFate’s view, when the social distance
between the highest and lowest income levels is too great, the
trickle-down method becomes an ineffective way to reach
those at the lowest level. In addition, McFate argued that too
much inequality may undermine the legitimacy of our eco-
nomic system and the functioning of our political systems. 
Timothy Smeeding echoed McFate’s sentiments,
advocating the need to examine further the effectiveness of
policy responses to inequality. Smeeding identified three
broad categories of policy responses worthy of study: policies
aimed at investing in public goods to enhance human capital,
policies that reward socially acceptable actions and provide
economic mobility by increasing incomes (such as earned
income tax credits), and policies that assist those individuals
with the most serious physical and mental disabilities.
*Opening Remarks, reprinted in Income Inequality: Issues and
Policy Options. Federal Reserve Bank of Kansas City Symposium
Series, 1998.
The views expressed in this summary are those of the authors and do not
necessarily reflect the position of the Federal Reserve Bank of New York or
the Federal Reserve System.

Unequal incomes, unequal outcomes? Economic inequality and measures of well-being: summary of observations and recommendations

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Unequal incomes, unequal outcomes? Economic inequality and measures of well-being: summary of observations and recommendations

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