Crain's New York
Fueled largely by a booming Wall Street, the share of income going to the tiny sliver of New York's wealthiest—the top 1% of households—soared to 44% in 2007 from 17.2% two decades earlier. The average income of the city's super rich was $3.7 million, and the price of entry into this exclusive club of 34,625 members was $642,000.
While the city's rich have gotten richer, everyone else is treading water at best, according to a report to be released Monday by the Fiscal Policy Institute, a liberal think tank. The income share of the bottom 90% of households here was 34.5% in 2007, compared with 59.1% in 1987. Even as the city's economy grew at a rate of 2.9% annually from 1990 to 2007, the hourly median wage fell 8.6%, to $15.50; median household income fell 2.2%, to $45,000.
“There has been considerable growth,” says James Parrott, the institute's chief economist, “but it has not meant higher real wages or higher family income for most New Yorkers.”
The shift was driven largely by Wall Street, where average salaries more than doubled (although they subsequently declined 23% between 2007 and 2009, to $311,000). Meanwhile, structural changes in the economy have led to a shift from relatively high-paying manufacturing and back-office jobs to lower-paid service positions.
Though the growing gap between the rich and everyone else mirrors a national trend, it is especially exaggerated here. Nationally, the top 1% earned 23.5% of total income in 2007, compared with 12.7% in 1987. A combination of financial deregulation, tax cuts and the declining influence of labor unions set the trend in motion in 1980.
In New York, another major reason for the concentration of wealth is simply that the rich want to live here. A stable economy, low crime rates and an improved quality of life have drawn top earners and the major corporations that employ them back to a city they once fled. Their presence in turn helps keep city coffers filled, schools staffed and streets safe. The top 1% pay more than half of the city's personal income taxes.
Yet income disparity presents its own set of challenges, especially during recession, and those challenges have become an element of almost every policy debate in New York.
The economics of living in the city “get more and more distorted,” says Barbara Byrne Denhem, chief economist at real estate services firm Eastern Consolidated. “In no other industry is this more apparent than in New York's residential real estate market, where it's so difficult to afford to live if you're not in a rent-stabilized apartment or locked into a low mortgage.”
The FPI report argues that the income gap will also restrain the recovery, as many residents lack the purchasing power to buy the goods and services that would get the economy churning again.
“Better distribution of wealth would positively impact small business because you'd have a greater number of potential consumers out there,” says Carl Hum, president of the Brooklyn Chamber of Commerce.
Most policymakers agree that the chasm between haves and have-nots is not healthy for New York, but there is less agreement on what should be done. The FPI and union leaders call for such measures as raising the minimum wage, boosting taxes on top earners and tying living-wage provisions to government-subsidized projects.
“Creating good, family-sustaining jobs is an ingredient to economic recovery that government cannot ignore” says Mike Fishman, president of SEIU 32BJ.
Business leaders and city officials bristle at any move that might challenge the city's competitiveness. Instead, they argue for a greater focus on improving chances for those at the lower wage end through schooling and by attracting businesses that provide good-paying jobs at all skill levels.
“Our focus is on generating opportunities for low- and middle-income New Yorkers, not suppressing high incomes,” says a spokesman for Mayor Michael Bloomberg. “We certainly wouldn't rather the highest-income jobs to be in London or Hong Kong instead of New York City.” Education is the key
The emphasis should be on education, says Kathryn Wylde, president of the Partnership for New York City, who adds that salaries for residents aged 25 and over rose in 2009 with each level of degree completed. “The growth sectors of the global economy are in areas that require education,” she says.
Mr. Parrott counters that while higher education may be a prerequisite to get ahead, it's far from a guarantee. Average earnings for New Yorkers aged 25 to 34 who have a bachelor's degree actually fell 6% between 1990 and 2007, to $57,000, he says.
Steven Malanga, a senior fellow at the Manhattan Institute, a conservative think tank, has another solution: Cut the taxes and red tape that make it so difficult to bring good-paying jobs to the city. Businesses are willing to locate their highest-paid positions here but can no longer afford the ones that were once the foundation of the city's middle class, he says.
“You have to lower the cost of operating and locating in New York,” Mr. Malanga says. “You can't do that if your policymakers think of the city as a luxury product that is only suitable for very-high-wage workers and the low-paid workers who support them.”
Mr. Bloomberg is unapologetic. In a speech last week, he said that his administration has created jobs in middle-income industries, including 2,300 at the Brooklyn Navy Yard. More people are staying in and coming to New York, he said, because they want all the great things the city has to offer, including career opportunities.
New York has always been home to the rich and the poor. The key to its future success is to ensure everyone has a shot at joining the club.