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By: Ugne Saltenyte

During the global economic downturn, household incomes fell in most of the developed world. Seven years later, in 2014, key North American cities had mostly recovered, with their average household disposable incomes being on average 4% higher than before the crisis in 2007. In Western Europe, household incomes exceeded the pre-crisis levels in a third of the major metropolises. However, regardless of the development in the average living standards, the urban poor (defined as the lowest-earning 10% of households in the city) still found themselves earning less in 2014 than they did in 2007 across both North America and Western Europe.

Change in Average Disposable Income of the Lowest-Earning 10% (decile 1) and the Highest-Earning 10% (decile 10) of Households, 2007-2014 (Constant 2014 Values)

Urban-Poor

Source: Euromonitor International

Income growth in North American cities determined by the rich

Tangible economic recovery in the North American metropolises has brought their per household disposable incomes above the pre-crisis levels (except for Miami). However, this income rise has been largely determined by the increasing incomes of the urban rich. Over 2007-2014, the average income of the highest-earning 10% of households surged in nearly all major North American metropolises. However, the more shocking fact is that during the same time the income of the lowest-earning 10% of households actually declined in North American cities (except for Toronto).

The increasingly wealthy urban rich is estimated to see income continue expanding to 2030. By the same year, the lowest-earning segment of some North American metropolises will barely reach the 2007 disposable income level. This is expected to be the case in San Francisco, Chicago, Los Angeles and Phoenix. Such divergent developments could cause rises in income inequality in the region, as an increasingly large income share would be concentrated among the upper-income segments.

Average Disposable Income of Decile 1 and Decile 10 Households in Five Largest North American Cities, 2007-2030 (Constant 2014 Values)

Average-Disposable-Income

Source: Euromonitor International

Most Western European cities still recovering

The urban poor saw even more pronounced income decline in Western European cities over 2007-2014 (on average -11% versus -7% in North American cities). The income levels of the lowest-earning 10% of households fell across all major Western European cities over 2007-2014 (except for Brussels, London, Oslo and Zurich). As a result, despite the recovery observed in some Western European metropolises, in 2014 the lowest-earning households still found their purchasing abilities below the pre-crisis levels. However, it should be noted that their disposable incomes were still on average 49% greater than in North American cities in 2014.

Meanwhile, the richest segment of Western European cities experienced divergent developments. On the one hand, cities like Stockholm, Frankfurt am Main and Copenhagen saw their highest-earning households become wealthier, which ultimately means good news for European consumer goods and services companies supplying the upper-income households. The above-mentioned urban economies were generally less aggravated by the global downturn or recovered quicker. On the other hand, in Southern European cities like Athens, Rome and Madrid the average disposable household incomes of the highest-earning 10% of households were still well behind the pre-crisis levels, as of 2014. This was a result of the region’s sovereign debt crisis, sluggish economic recovery and persistently high unemployment. The falling incomes have led to cutbacks in spending in the above-mentioned cities, especially on big-ticket and discretionary items.

Average Disposable Income of Decile 1 and Decile 10 Households in Five Largest Western European Cities, 2007-2030 (Constant 2014 Values)

Disposable-Income-Western-Europe

Source: Euromonitor International

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