Regional Employment And Wage Gaps Have Narrowed But Inequalities Prove Deeply Entrenched As Child Poverty Gaps Widen Further

8th August 2024

Progress has been made in narrowing some geographic economic gaps, but the same areas have tended to either lag behind or prosper that did so thirty years ago, and spatial disparities in child poverty have widened since 2014-15 - according to new Resolution Foundation analysis published on Tuesday 6 August 2024.

The report, Uneven ground, uses a range of economic outcomes to assess the state of geographic inequality facing the new Government. The analysis reveals a mixed picture, as some economic gaps have shrunk, some remain unchanged, and some worsening, particularly in the most recent years.

The good news is that employment and wage gaps between different parts of the country have fallen since the 1990s. For example, the employment gap between low and high-employment local authorities shrank by 3 percentage points over the 2010s. This reflects that it has become easier to find work in historically low-employment areas than it used to be. In Tower Hamlets and Manchester, for example, the employment rate has risen from around 50 to 70 per cent over the last 30 years. The remaining regional employment gaps are much less worrying, the Foundation argues, than those following deindustrialisation of the 1980s and 1990s.

Wage gaps between places have also come down, primarily for the lowest earners, and thanks to a rising minimum wage. For example, the pay gap between the lowest-paid workers in Basingstoke (one of the highest-paid areas) and Plymouth (one of the lowest-paid areas) was 26 per cent in 1997, but this has shrunk to just 3 per cent by 2023.

But despite shrinking wage and employment gaps in the last couple of decades, geographic gaps in before-housing-cost income inequality have remained stubbornly high. The average income per head in the richest area (Kensington and Chelsea) is over four times that of the poorest area (Leicester). Critically, over the past 25 years, poor places have tended to remain poor and rich places rich. The average before-housing-cost income per head in Hammersmith and Fulham has been consistently two-to-three times higher than in Burnley since the late 1990s, for example.

Another large and persistent economic gap is productivity - a measure of the ‘effectiveness' of local economies. Gross Value Added (GVA) per job in London was 45 per cent above the national average in 2022, and many of our second cities lag behind, with Manchester 7 per cent above the average and Birmingham 4 per cent below. These productivity gaps are rooted in the 1980s deindustrialisation period, as areas outside of London struggled to transition from manufacturing industries to tradable services as effectively as London did.

Although the UK has made progress closing employment and wage gaps, and had more-of-the-same for income and productivity gaps, there have been widening spatial disparities in child poverty in the most recent years. The result is that nearly half (48 per cent) of children living in Birmingham and Manchester are now growing up in relative child poverty (after housing costs). The report notes that the geographic location of child poverty hotspots has shifted: in 2014-15, 19 of the 20 hotspots were in London, but by 2022-23, only three remained in London, with the rest split between the North West and West Midlands.

The new Government may have ditched the language of ‘levelling up', but their growth agenda cannot be achieved without unlocking the potential of the UK's second cities and ensuring living standards improve in all parts of the country. More than six-in-ten people say that gaps between areas are one of the most concerning types of inequality the country faces but, as the Foundation notes, regional economic differences are deeply entrenched and won't be solved overnight.

Charlie McCurdy, Economist at the Resolution Foundation, said, "While the UK has narrowed employment and wage gaps across the country over the last three decades, income and productivity gaps have remained large, and child poverty gaps have grown in recent years.

"Of most concern is that regional economic differences are deeply entrenched: across multiple measures, the places that were doing worst in the late 1990s have generally continued to do so.

"The new Government may have ditched the language of ‘levelling up', but their growth agenda cannot be achieved without unlocking the potential of the UK's second cities and raising living standards in all parts of the country."

Key findings
The good news is that employment and wage gaps between different parts of the country have fallen since the 1990s. For example, the employment gap between low (10th percentile) and high-employment (90th percentile) local authorities shrank by 3 percentage points over the 2010s. This reflects that it has become easier to find work in historically low-employment areas than it used to be. In Tower Hamlets and Manchester, for example, the employment rate has risen from around 50 to 70 per cent over the last 30 years.

Wage gaps have also come down, primarily at the bottom of the pay distribution, thanks to a rising minimum wage. For example, the pay gap between the lowest-paid workers in Basingstoke (one of the highest-paid areas) and Plymouth (one of the lowest-paid areas) was 26 per cent in 1997, but this has shrunk to just 3 per cent by 2023.

The less good news is that overall income gaps between places haven't changed much since the late 1990s. The average income per head in the richest area (Kensington and Chelsea) is over four times that of the poorest area (Leicester). The average before-housing-cost income per head in Hammersmith and Fulham has been consistently two-to-three times higher than in Burnley since the late 1990s, for example.

Productivity gaps between places are also both large and persistent. In 2022, gross value added (GVA) per job in London was 45 per cent above the national average, while Manchester’s GVA per job is just 7 per cent above the average, with Leeds 2 per cent above and Birmingham 4 per cent below. These productivity gaps are rooted in the 1980s deindustrialisation period, as areas outside of London struggled to transition from manufacturing industries to tradable services as effectively as London did.

The bad news is that spatial disparities in child poverty have increased. In 2022-23 nearly half of children in Birmingham, Tower Hamlets, Manchester (all 48 per cent), Sandwell (47 per cent), Stoke, Oldham, Wolverhampton and Walsall (all 46 per cent) were in families in poverty. The geographic location of child poverty hotspots has shifted: in 2014-15, 19 of the 20 hotspots were in London, but by 2022-23, only 3 remained in London with rest split between the North West and West Midlands.

The big-picture story on how regional economic gaps have evolved is mixed. Wage and employment gaps have fallen, but income and productivity gaps remain stubbornly high and child poverty gaps have grown. It is especially concerning that across all of these domains low-performing areas have tended to remain low performing, while the reverse is true for high-performing areas.

Read the full Uneven Ground Report HERE
Pdf 17 Pages