Linking National and Regional Income Inequality: Cross-Country Data Harmonization and Analysis – REGINEQ (ES-T010525-1)

Our methodology aims to address three main problems:
• establishing consistent and comprehensive measures of income inequality over time
• defining comparable geographic areas
• adjusting incomes to account for local variations in the cost of living, particularly housing costs
We will primarily use the following definitions of income: a) labor income, corresponding to the sum of labor income flows before taxes and transfers and excluding non-salary compensation; b) total pre-tax income, which includes labor income, capital income, and transfers such as pensions. We will use national tax registers, labor income registers, and household surveys to construct our measures.
We will define geographic units based on «labor market local areas,« where we will construct consistent geographic units across countries and over time. Existing concepts include
1. functional urban areas and commuting zones;
2. OECD functional urban areas, which group the hinterland of these urban areas based on commuting patterns but ignore rural areas;
3. UK «Travel to Work Areas« (TTWAs), where zones are constructed from an algorithm using commuting data so that most employed residents work in the area and most workers employed in the TTWA also live there.
Considering the local cost of living differences is essential for assessing comparable inequality measures between regions. Therefore, we propose adjusting national price indices using local information on the city and regional rent levels. We will use city-level rent indices in particular.

Our initial results suggest that regional labor income inequality is significant. However, there are differences in both levels and trends between the three countries studied, namely France, Germany, and the UK. For the UK, the importance of location increases significantly, particularly between 1979 and 2002, while for Germany, spatial differences are low in level and stable over time. In France, spatial inequalities are relatively high but declining over time.

Our goal is for the database, the developed methodology, and the resulting articles to be an entry point for researchers interested in the spatial dimension of income inequality. The comparative international dimension of our project will be helpful for policymakers to understand how their country compares to others. After analyzing the first five member countries of the project, we plan to use our methodology to create a global database that we aim to expand to as many countries as possible.

We will first produce a technical article presenting our methods for decomposing national and subnational income inequality. Specific reports and articles will shed light on each country's trends in spatial inequality. Other articles using counterfactual simulations will comparatively explore the determinants of differences. Finally, we will produce a database of income inequalities in space.

Our study focuses on income inequality in towns and cities within countries and how this has changed over time in five high-income countries. In recent years, academic research has highlighted the rise of income inequality, particularly the increase of top 1% income share, and the associated social, economic and political problems. It is becoming increasingly clear that these national income inequalities are driven in part by income inequalities within countries, with a divide between the 'superstar' global cities (London, Paris, New York) and 'left behind' ex-industrial towns. This is apparent in the rise of 'populist' politics, in which people living in economically declining places are feeling the pull of simplistic solutions to complex social and economic problems.

Governments and international organisations have become increasingly aware of the problems associated with national economic inequality, aided by existing research that provides evidence from different countries. To help governments find ways to spread prosperity more evenly across their towns, cities and regions, there is a need for internationally comparable evidence to show how different countries perform in terms of geographic inequalities.
The lack of consistent and comparable datasets on national inequality decomposed into sub-national regions has so far prevented the investigation of fundamental questions: What is the influence of growing disparities across and within local areas on overall inequality? Is it that a few 'superstar' cities are the main engines of country-level trends? Does the divergent evolution of national inequality across countries emerge from trends at the sub-national level? How are local costs of living in different areas evolving over time and across countries? What are the main geographic division lines in terms of income and economic activity within countries?

Our study will examine trends in geographic income inequality across five high-income countries - Canada, France, Germany, the United Kingdom and the United States - since the 1970s. We have brought together an international expert team of geographers with experience of studying geographic inequality and economists experienced in measuring national income inequality. The first objective of our research is to develop a method for analysing geographic income inequality in a way that can be compared between countries. We will tackle three big problems: defining comparable geographic areas, having consistent measures of income and adjusting incomes for the varied local cost of living (e.g. housing costs). We will use data from national tax records, from registries of workers' earnings and household surveys. Using this method, our second objective is to assess the importance of geographic inequalities in driving national income inequalities across our five study countries. Third, we will analyse the common trends and differences between and within countries, and investigate the causes of these trends. Our final objective is to use this project as the foundation of a global database that provides information about inequalities between places. Our vision is that this will act as a point of information for researchers to study the causes of geographic income inequality, and for governments to understand how their country compares to others.