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Neighbourhood inequality in Canadian cities

by John Myles, Garnett Picot and Wendy Pyper
Business and Labour Market Analysis Division
Analytical Studies Branch research paper series, No. 160

The economic deterioration of poorer neighbourhoods has long been an issue in American cities, and there is now evidence to suggest that this may be occurring in some Canadian cities. This is important because the characteristics of the community in which people live, young people in particular, affect their life-chances. In this paper, we use census tract data to analyse neighbourhood income inequality in the eight largest Canadian cities during the 1980-95 period. We ask whether the income gap (based on average family neighbourhood income) between richer and poorer neighbourhoods rose, and if so, is this due to a deterioration of the economic circumstances in the poorer neighbourhoods.

Using an analysis of various periods, 1985-95, 1980-90, 1990-95, we find that between neighbourhoods, income inequality rose in all
cities, based on total family income (after transfers, before taxes). The Theil index of inequality increased by between 30% and 60% over the full period. This increase was driven largely by a substantial rise in neighbourhood (employment) earnings inequality. Between 1980 and 1995, real average family neighbourhood earnings fell between 20% to 33% (depending upon the city) in low-income neighbourhoods (neighbourhoods in the bottom neighbourhood income decile), while rising marginally (up to 15%) in the highest income neighbourhoods. While some of this change may have been related to business cycle effects, analysis suggests that the declines in poorer communities occurred independent of the cycle. Social transfers, which were the main factor stabilizing national level income inequality in the face of rising earnings inequality, had only a modest impact on changes in neighbourhood income inequality. However, while social transfers are concentrated in low-income neighbourhoods, they rose in all neighbourhoods over the period, and hence had little equalizing effect on neighbourhood income inequality. Changes in the neighbourhood distribution of earnings signal significant change in the social and economic character of many neighbourhoods. Employment was increasingly concentrated in higher income communities and unemployment in lower income neighbourhoods.

Neighbourhood inequality in Canadian cities – (part 2)

Rising neighbourhood inequality may be driven by (1) rising income inequality in the city, (2) increasing neighbourhood economic segregation, or both. Rising family income inequality in the city as a whole will result in rising neighbourhood inequality, simply because low-income families tend to cluster in particular neighbourhoods, as do high-income families. However, even if income inequality does not rise in the city as a whole, neighbourhood inequality can rise because fam-ilies increasingly sort themselves into "like" neighbourhoods. This research used a "sorting" index and decomposed the rise in neighbourhood inequality into that due to a general increase in city level income inequality, and that due to increased "economic segregation". We find that economic spatial segregation increased in five of the eight cities and was the major factor behind rising neighbourhood inequality in four cities. A general rise in urban family income inequality was the main factor in the remaining four cities.

One can also ask whether the income fall in the poorer communities (and the associated rising inequality) was because of (1) a change in the demographic composition of the neighbourhoods (e.g. more young people, less educated people, or immigrants in the poorer neighbourhoods, characteristics associated with lower earnings), or (2) because the people living in these communities simply experienced lower employment and earnings levels (controlling for demographic characteristics). For demonstrative purposes we focus on Toronto, and using a regression decomposition technique, we find that changes in neighbourhood inequality were a product not of the changing social (demographic) composition of neighbourhoods, but rather of the uneven neighbourhood distribution of the effects of changes (to employment) in the urban economy. Change in the number of earners per family was a far more significant variable (accounting for 50% of the rise in inequality) than were changes in the demographic composition (accounting for 11%).

View the article in the Daily about this publication.

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