Most modern American cities have undeniably high rates of poverty. In 2000, more than twice as many Americans living in central cities lived in poverty than those living in suburbs. In U.S. metropolitan areas, the poor live closer to, and seem to be attracted to, the city center, while wealthier residents of the same metropolitan areas tend to live in suburbs, far away from the city center. Why do the poor live disproportionately in cities?

     This puzzle is a central question in urban econom- ics. Early work in urban land use theory explains the urban centralization of the poor by arguing that the rich buy more land and therefore choose to live where land is cheap. This makes sense as long as the income elasticity of demand for land is greater than the income elasticity of travel costs per mile – that is, as long as people are still willing to move outside the city, even given the longer commute. The model assumes that everyone uses the same mode of transportation and that the main cost of transport is time.  In this case, the poor will live in cities if and only if the income elasticity  of demand for land is greater than one.

     However, this early model is fl awed, and has limited applicability to modern American cities.  First, modern cities are not monocentric; rather, the vast majority of the jobs of a city tends to be located over three miles from the Central Business District (CBD). Second, the income elasticity of land for people living in apartments and detached homes is to be roughly 0.25, which is far less than one, the value necessary for the above model to hold.

     The 2000 U.S. Census shows that the average poverty rate in American cities drops significantly, from about 20% to 7.5%, as you move from the CBD of a city to its suburbs. How can we tell that this connection between city residence and poverty comes from treatment – that is, cities make people poor – rather than from selection, where the poor disproportionately move to central cities? Here, the data support selection: although ghettos may exacerbate poverty, poor people move disproportionately to the center of the cit- ies, either when switching homes or moving to a new metropolitan area.

     Given the high proportion of the urban poor who are Black, one might think that inner-city poverty is really just another example of the segregation of minorities. However, the authors found that poor Whites have roughly the same central city - suburb poverty gap as Blacks, so it is unlikely that race plays an important role in the centralization of the poor.

     Read on as Glaeser, Kahn, and Rappaport explore the urbanization of the poor and the reasons behind this phenomenon. They consider historical ideas and formulate their own theory on the importance of public transportation in causing this pattern. Download the PDF here, exclusively at YaleEconomicReview.com!