Economic Innovation Group: Distressed Communities Index

Last week, the Economic Innovation Group, a think tank backed by tech entrepreneurs, released a study on inequality in the US–something I learned about from a feature in the New York Times.

The most important conclusions of the study, as I see them:

–50 million  Americans, about a sixth of the total population, live in “distressed” zip codes

–in the distressed areas, 55% of the adults are not working and median income is 2/3 of the median level for that state.  27% of residents live in poverty.  25% of adults have less than a high school education.

–from 2010 through 2013, a period of strong recovery from recession, distressed areas lost 6.7% of their jobs; 8%+ of businesses there closed.

–distress in concentrated in a small number of areas that are suffering from long-term structural problems.  They are primarily in the South, the Southwest and the Rust Belt.  The recession didn’t cause the economic woes of these areas, but it certainly greased the downward-pointing skids.

Texas has 5.2 million people in distressed zip codes, the most of any state, and 20% of the population.  40% of the population of Mississippi lives in distressed zip codes, the largest percentage of any state.

–just as distress is concentrated in small enclaves, so too is prosperity.  The median zip code showed just a 2.3% annual increase in income, or less that half the 5.6% national average.  The median zip showed zero growth in businesses.

In contrast, in the top 20% of zip codes, jobs grew by 17.4% and businesses by almost 9%.

–sharp differences in economic health often exist side by side.  Well-off cities like New York or San Francisco exhibit little economic difference from zip code to zip code.  In contrast, in the most “spatially unequal” cities, as the report puts it, namely San Antonio, Phoenix and Columbus, “nearly adjacent neighborhoods live worlds apart.”

My point in all this?

This is a counterpoint to the glowing comments from Warren Buffett in his most recent letter to shareholders.  Yes, residents of distressed zip codes who can are voting  with their feet and leaving for more favorable climes–often in different neighborhoods in the same city.  As a result of such movement, one might take a very long view and argue that the economic issue dissipates with time.  But although the current plight of 50 million may not be so visible from Nebraska, their situation may turn out to be a social and political issue of some consequence in the meantime.  Very likely, it already is.


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