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Economy / Jobs

Here's why British cities with more jobs tend to have higher wages, too

The latest instalment of our weekly series, in which we use the Centre for Cities’ data tools to crunch some of the numbers on Britain’s cities.

Last week in this space, we looked at employment rates, the percentage of adults in Britain’s biggest towns and cities engaged in work at any one time. Here’s the map:

 

At the time we noticed there was an inverse correlation between this figure and the number of people claiming unemployment benefit. Well, duh.

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Here’s another correlation, just as predictable, but arguably more thought provoking. This map shows average weekly wages:

The pattern isn’t perfect: particularly to the east of London, major towns perform well on employment and poorly on wages, while in the north wages are lower across the board.

But once again there’s definitely a correlation, in which cities with strong employment tend to have strong wages too. Look:

This is exactly what an economist would tell you would happen. In a city with low unemployment rates, employers have to compete for staff. That puts upward pressure on wages: companies will pay more to attract new staff, and to hang on to the ones they’ve already got.


In cities where lots of people are out of work, though, employees are competing for jobs. Wages may not fall (it’s quite hard to reduce the pay of everyone who works for you without creating a riot), but there’ll be remarkably little pressure on them to rise either.

In other words, it’s all terribly unfair, but the laws of supply and demand means that the populations of cities with weaker economies tend to lose out twice: they have fewer jobs, and less money for those in work. Economic success begets economic success: so does its opposite.

This is probably why they call economics the dismal science.
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