Big cities play a central role in generating wages in their regions, but their underperformance limits how much prosperity they generate.
Centre for Cities has written extensively about the underperformance of big cities and the implications for the national economy. But what role do they play in the regional economy? This blog uses wage data to answer this question.
Despite their underperformance, big cities tend to offer higher wages than other parts of their regions. Figure 1 shows that in every region apart from Scotland and the East Midlands, the biggest cities had the highest average wages in 2024.
(It is also worth noting that while Wales and Northern Ireland don’t have any cities with population of over 600,000, Belfast and Cardiff also had higher wages than the rest of their countries.)
Illustrating the underperformance of many, there is though a lot of variation between them. Only London, Bristol and Leeds have pay above the national average. While all non-urban areas are below the national average (as agglomeration theory would predict), there is much less variation between them, suggesting underperformance is much less of an issue for this part of the economy.
The underperformance of most big cities is reflected in the difference in urban and non-urban wages within the regions. Wages in London were 38 per cent higher than the non-urban parts of the Greater South East and Bristol’s were 24 per cent higher than the non-urban parts of the South West. The equivalent figures in the North East and North West were 9 per cent and were just 5 per cent in the West Midlands.
These high wages are earned in big cities, but the prosperity generated spreads well beyond them. Figure 2 looks at the total amount of pay generated by jobs and paid to residents. It shows two main things.
The first is that the big cities generate a large share of total wages earned. In the North West, Manchester and Liverpool account for almost 50p of every £1 earned by workers in the region.
The second is that the large cities’ share of wages received by residents is lower than their share of wages earned by jobs in every region. This is because some of these wages are earned by commuters, who take their pay back to towns and villages outside of the city.
For example, Birmingham sent out £83 million (net) per week in wages, and Manchester £81 million.
That is much smaller than London though: the capital sent out a startling £1 billion per week to the Greater South East and beyond.
Note: Chart shows data for those regions that have a city with a population over 600,000
So big cities play an important role in their regions. But, given their underperformance relative to their G7 comparators, this role is not as prominent as it should be. If the Government is going to put more money in the pockets of people across the country, then improving the performance of big cities will be central to these efforts.
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