from the St Louis Fed

Regional income inequality appears to be more severe in China than in the U.S. But the degree of disparity shrinks in China and expands in the U.S.when housing costs are taken into account, according to a recent article in the Regional Economist.

Assistant Vice President and Economist Yi Wen and Research Associate Brian Reinbold explored the impact of housing costs on standards of living.

“Solely looking at income tells only part of the story about the difference in people’s living standards because income does not reveal information about the cost of living,” they wrote. “For example, housing prices can vary tremendously across a nation; they also vary based on urban, suburban and rural geography.”

Income Inequality

The authors first looked at 2015 per capita disposable income in China’s provinces and the municipalities of Beijing and Shanghai. They found that the highest regional income (which was in Beijing and Shanghai) was four times greater than that of the poorest provinces (Gansu and Xizang).

They then used the housing data to calculate a Gini coefficient, which is a standard way to measure inequality.

The resulting Gini coefficient for Chinese regional income inequality was 0.19. The coefficient takes a value between 0 and 1, with 0 representing perfect equality and 1 indicating maximum inequality.1

For the U.S., they looked at similar income for U.S. states and the District of Columbia, finding that per capita income in the wealthiest area (D.C.) was about twice as large as per capita income in the poorest state (Mississippi).

The resulting Gini coefficient for U.S. regional income inequality was 0.08, less than half the level of China’s.

By looking only at income, the authors noted that “regional income inequality is much greater in China than in the U.S.”

The Housing Impact

The authors then looked at the regional differences in housing costs. Why look at housing?