Labour market
·
Cities and regions

The power of place

The role of place in driving regional pay inequalities

Richmond Egyei
Richmond Egyei
Emily Fry
Emily Fry
Tasos Kitsos
Tasos Kitsos
Dalila Ribaudo
Dalila Ribaudo
Greg Thwaites
Greg Thwaites
Enrico Vanino
Enrico Vanino

Pay varies dramatically across England. In 2024, average weekly wages range from £610 in Liskeard to £1,130 in London. Is this because high‑earning areas attract inherently higher‑earning people, or because the jobs located there pay more to any worker?

Using the Longitudinal Education Outcomes (LEO) dataset, which covers almost every worker born after 1985 who was educated and is now employed in England, we follow early‑career workers (aged 22–36) as they move between jobs, firms and the country’s 155 Travel‑to‑Work Areas (TTWAs). Tracking the same individuals allows us to separate people effects (workers attributes) from place effects (wages attached to the job’s location).

Our central finding is that even after accounting for people’s changing characteristics, one-third of the pay differences between labour markets stem from places themselves, rather than the people within them.

Key findings

  • Place effects account for one‑third of wage gaps. A full‑time worker moving from low‑pay Dudley to high‑pay Harrogate gains about £1,300 a year roughly 5 per cent of earnings purely from where they live.
  • People effects explain one‑quarter of the gap. High‑potential workers earn more wherever they go, but the people effect is smaller than the place effect.
  • Sorting amplifies inequality. The tendency of high‑earning‑potential workers to locate in high‑pay areas explains 42 per cent of the variance in wages.
  • Agglomeration effects are modest. Doubling labour‑market size raises pay by just 3.9 per cent, accounting for only 24 per cent of the place premium.
  • Industry mix and firm size also don’t explain the place effect. Sector composition explains just 3 per cent of pay differences; the remainder comes from higher wages within the same sectors and firm size bands, pointing to a concentration of high‑value firms and functions in particular areas.
  • London pay boosts are portable. A year spent working in London leaves early‑career workers earning around 10 per cent more even after they move to another major city.

Recommendations

  • Place effects account for one‑third of wage gaps. A full‑time worker moving from low‑pay Dudley to high‑pay Harrogate gains about £1,300 a year roughly 5 per cent of earnings purely from where they live.
  • People effects explain one‑quarter of the gap. High‑potential workers earn more wherever they go, but the people effect is smaller than the place effect.
  • Sorting amplifies inequality. The tendency of high‑earning‑potential workers to locate in high‑pay areas explains 42 per cent of the variance in wages.
  • Agglomeration effects are modest. Doubling labour‑market size raises pay by just 3.9 per cent, accounting for only 24 per cent of the place premium.
  • Industry mix and firm size also don’t explain the place effect. Sector composition explains just 3 per cent of pay differences; the remainder comes from higher wages within the same sectors and firm size bands, pointing to a concentration of high‑value firms and functions in particular areas.
  • London pay boosts are portable. A year spent working in London leaves early‑career workers earning around 10 per cent more even after they move to another major city.

Further reading

The power of place
The role of place in driving regional pay inequalities
·
Richmond Egyei, Emily Fry, Tasos Kitsos, Dalila Ribaudo, Greg Thwaites, Enrico Vanino
Precarious prospects
Understanding precarious work among foreign-born workers
·
Hannah Slaughter, Imogen Stone
Minimum wage, maximum pressure?
The impact of 2025’s minimum wage and employer NICs increases
·
Nye Cominetti, Greg Thwaites

https://doi.org/10.63492/xnbr307

Richmond Egyei
Richmond Egyei Postdoctoral Research Specialist
Emily Fry
Emily Fry Senior Economist
Tasos Kitsos
Tasos Kitsos
Dalila Ribaudo
Dalila Ribaudo
Greg Thwaites
Greg Thwaites Research Director
Enrico Vanino
Enrico Vanino