“Sorting Effect” is the primary reason why innovation leads to income segregation.

How does the sorting effect work? Because the knowledge economy is driven by the exchange of ideas, innovative companies tend to cluster together. Subsequently, to reduce commuting costs, highly educated, highly paid individuals working at those companies choose to live nearby. That causes low-income and high-income workers to separate into completely different regions of the city. A high concentration of high-income workers also leads to a demand for more expensive amenities, such as Whole Foods, yoga studios, and coffee shops. The gentrification amplifies property value increases and further pushes low-income individuals out.