Earnings inequality and central-city development

This paper was presented at the conference \\"Unequal incomes, unequal outcomes? Economic inequality and measures of well-being\\" as part of session 4, \\"Economic inequality and local public services.\\" The conference was held at the Federal Reserve Bank of New York on May 7, 1999. The author considers not only the competition between cities, but also the competition between cities and the surrounding areas - the suburbs. He notes that rising income inequality tends to lead to greater income disparity between the suburbs and the central cities because the rich are more likely to move to the suburbs. In addition, business suburbanization has occurred because modern transportation and communication technologies have reduced the costs of moving people, goods, and messages over considerable distances. Moreover, some central business districts have become so large as to exhaust the advantages of locating there. However, the author suggests that the movement of businesses away from central cities began to change around 1996. Tighter labor markets have induced U.S. businesses to locate in central cities for the same reason that these businesses have been going to Mexico and East Asia - namely, the availability of relatively low-wage workers. The author also cites the dramatic fall in central-city crime rates in the 1990s and new legislation allowing cities to limit \\"brownfields liability\\" - the liability of businesses for environmental damage that occurred before their occupation of a site - as developments that have made it easier for businesses to return to the central cities.