In 2022, the UK administration launched its 'Regional Prosperity Directive', designed to narrow the widening productivity and earnings gaps between the nation's economic core and its periphery. While central metropolitan hubs feature some of the highest high-value services productivity in the world, many peripheral, rural and former industrial areas have experienced decades of stagnation, leading to significant regional wage disparities as illustrated in Fig. 1.1.
Fig. 1.1 Average Weekly Earnings (£) by Region in 2022
| Region | Average Weekly Earnings (£) |
|---|---|
| National Average | 680 |
| Metropolitan South (London) | 910 |
| South East | 750 |
| East of England | 660 |
| South West | 610 |
| West Midlands | 600 |
| East Midlands | 610 |
| North West | 620 |
| Yorkshire and the Humber | 590 |
| North East | 570 |
| Wales | 560 |
| Scotland | 630 |
| Northern Ireland | 550 |
Some policymakers argue that low labor market flexibility—specifically weak geographic mobility—is a vital contributor to these persistent earnings gaps. A prominent driver is the widening disparity in residential property prices across regional markets, illustrated by the index values in Fig. 1.2. The widening gap in housing costs acts as a financial barrier, making it exceedingly difficult for households to relocate to high-wage cities and preventing competitive forces from equalizing wages.
Fig. 1.2 Regional Property Price Index 2000–2022 (Base Year = 2000)
| Region | index (2000) | Index (2011) | Index (2022) |
|---|---|---|---|
| Metropolitan South (London) | 100 | 215 | 410 |
| South East | 100 | 195 | 315 |
| East of England | 100 | 185 | 300 |
| West Midlands | 100 | 165 | 235 |
| East Midlands | 100 | 160 | 230 |
| North West | 100 | 158 | 225 |
| Yorkshire and the Humber | 100 | 155 | 220 |
| North East | 100 | 148 | 195 |
| Wales | 100 | 150 | 210 |
| Scotland | 100 | 152 | 222 |
Other structural barriers further limit regional labor flexibility. These include weak public transport networks that constrain daily commuting, informational asymmetries regarding out-of-region job vacancies, and occupational immobility driven by a lack of transferable credentials. However, the rise of secure remote working configurations has begun to mitigate some physical immobility.
Alternatively, non-flexibility factors are widely cited as the true drivers of these differentials. The share of high-skilled workers with higher education degrees has risen nationally, but these qualifications are highly concentrated in the Metropolitan South. Rapid technological integration has displaced medium-skilled roles in manufacturing hubs while intensifying demand for specialized, tech-literate labor. Additionally, large multinational investments in high-growth services like fintech, consulting, and AI remain disproportionately clustered in the South East, structurally lifting local labor demand.
Evaluate, using an appropriate diagram(s) and the information in Extract 1, whether low labor market flexibility is the main cause of wage differentials between different regions of the country.
