This paper contributes to the literature on neighborhood inequality along both the-oretical and empirical lines. We introduce a new neighborhood inequality index (NI) to measure income inequality within individual neighborhoods of varying sizes, and study its normative and statistical properties. The NI index is used in combination with a large database of income distributions on a fine-grained geographic scale to study neighborhood inequality in American cities over the last 35 years. Inequality within small individual neighborhoods is found to grow steadily over the period, albeit heterogeneously. The paper goes on to investigate the intergenerational con-sequences of a rising NI index, exploiting labor market responses to minimum wage regulation as a source of identification. This provides evidence that lower neigh-borhood inequality during childhood makes income mobility for children with a disadvantaged parental background more likely.