Early career workers suffer a five per cent place-based pay penalty for working in weaker labour markets

England’s stark regional wage inequalities are driven by the places where people work, and not just by the people who work in different places as earlier studies have suggested, which should prompt a rethink about how policy makers can address these divides, according to ground-breaking new research published today (Monday) by the Resolution Foundation.

The Power of Place uses newly available data and techniques to shed new light on what is driving England’s significant regional wage inequalities.

The scale of wage inequality across Britain is stark – an average worker in London earns almost twice as much as an average worker in Liskeard, Cornwall (£1,130 and £610 a week respectively).

Previous studies have suggested that these inequalities are driven by people, with the higher wages in London and the South East driven by the type of people who work there, rather than the places themselves.

However, the new research – which analyses the earnings data of all school leavers in England born since 1985 – finds that local labour markets are in fact a major driver of wage inequality, with some places paying far higher wages than others for otherwise-identical early-career workers.

A typical full-time early career worker suffers a five per cent place-based pay penalty (worth £1,300 a year) if they move from a typical high-paying labour market (like Harrogate) to a typical low-paying one (like Dudley).

The authors find that these place-based pay penalties and premiums (for higher-paying areas) apply to both graduates and non-graduates, and can be portable too – someone who has worked in London in their early career retains a 10 per cent pay premium even once they’ve left.

The research examines what lies behind these place-based pay differences and finds that the size of a local labour market matters less than is commonly assumed. Cambridge and Leicester have similarly-sized labour markets, yet the average weekly wage in the former is 23 per cent higher than the latter.

This suggests the pay gains of ‘agglomeration effects’ – making cities even larger – may be limited. The research finds that doubling the size of a local labour market – a truly transformative change for the population of any town or city – would boost the pay for a typical worker by a modest 4 percentage points.

Another common assumption is that industrial sectors drive regional wage divides, with London’s high pay rates driven by it being the home of financial services, law and consulting. But the research finds this only explains a small part of England’s wage inequality puzzle – firms pay higher wages in London compared to other places irrespective of which sector they work in.

Instead, a major driver of place-based penalties and premia is where individual firms choose to locate. Getting high-paying firms to relocate to their area could deliver bigger gains for the local population, and should play a larger role in city-region and local policy makers’ plans.

Finally, the authors say that the importance of place in determining people’s pay shows that there are big living standards gains to be made from early-career workers moving to high-paying areas.

And yet despite this, the frequency of job moves has fallen in recent decades – from 3.1 per cent in the first quarter of 2002 to 2.2 per cent in the first quarter of 2025 – with previous Resolution research finding that high housing costs are a major barrier for young people moving.

The Foundation says that policy makers can address this by encouraging housebuilding – including affordable homes – in better-paying areas, as well as reforming property taxation, to make it easier for people to move.

Greg Thwaites, Research Director at the Resolution Foundation, said:

“England is beset by stark and persistent geographic wage inequalities, with Londoners’ typical earning twice as much as those living in places like Liskeard or Cromer. It’s often assumed that people are driving these divides, but in fact place-based pay penalties are rife across England. A typical early career worker could lose out on £1,300 a year just because of where their job is located.

“Policy makers at local, regional and national levels can address these divides by creating the conditions for high-paying firms to locate to their areas, while avoiding an arms race between regions in subsidies for firms.

“Moving to higher-paying areas can hugely boost young people’s career earnings, but housing is a major barrier to making these moves. Policy makers should do more to bring these housing barriers down.”

Notes to Editors

Embargoed copies of The power of place: The role of place in driving regional pay inequalities, by Richmond Egyei, Emily Fry, Tasos Kitsos, Dalila Ribaudo, Gregory Thwaites, Enrico Vanino are available from the press office. The research is a collaboration between the Foundation and researchers at the Universities of Sheffield and Aston, and has been funded by UKRI.