Regional pay event slides.

1. Wifi
2QAG_Guest
Welcome_Guests #RegionalPay June 23, 2025
@resfoundation
The pay postcode lottery
What is driving Britain’s place-based wage divides?
Xiaowei Xu, Senior Research Economist at the Institute for Fiscal
Studies
Henri Murison, Chief Executive at The Northern Powerhouse
Partnership
Rachel Taylor, UK Government and Health Industries Leader at PWC
Greg Thwaites, Research Director at the Resolution Foundation
Chair: Ruth Curtice, Chief Executive of the Resolution Foundation

2. 2
@resfoundation
Pay and productivity are unequal across the UK
Gross Value Added per filled job (horizontal axis) and average annual wages (vertical axis) by TTWA: UK, 2022/2024
Notes: Bubbles sized by number of jobs in each TTWA. Average wages for full time workers.
Source: Analysis of ASHE, 2024 and ONS, GVA per filled job.

3. 3
@resfoundation
Two broad possibilities:
1. The people are different:
• Workers with high earning potential cluster in e.g. London
2. The places are different:
• Jobs in e.g. London would pay more to all kinds of workers
Why does pay vary so much across the country?

4. 4
@resfoundation
Important policy implications
• If it’s the people:
• Moving people or jobs around might change regional inequality but won’t change
total earnings much
• If it’s the places
• Can increase aggregate GDP if we put more people within reach of the best jobs
Why should we care?

5. 5
@resfoundation
• Previous work: it’s largely the people
• Today’s result: place is a bigger deal than previously
thought
New finding – places matter more than we thought

6. 6
@resfoundation
• Longitudinal Educational Outcomes dataset
• Education, earnings and employment history of nearly every English school-leaver born since
1985
• Break wages down into ‘place’ and ‘people’ effects
Alice’s wages = where Alice works + what Alice is like
• Measure how their wages change as Alice and 5 million other early career workers
gain experience and move around the country
• Infer the place effect when you see people’s wages change as they move jobs
• Infer the person effect from their wages and the place effect
How we did it

7. 7
@resfoundation
Place effects explain about 1/3 of regional earnings inequality
Variance decomposition of log earnings across TTWAs, using different methods: GB / England
Source: Analysis of Longitudinal Educational Outcomes (LEO), 2013 to 2020; H Overman & X Xu, Spatial disparities across labour markets, IFS Deaton Review of
Inequalities, 2022.

8. 8
@resfoundation
Sorting: people and place effects compound regional earnings
inequality
People and place effects across English TTWA
Notes: RF analysis of LEO

9. 9
@resfoundation
Could be:
• Size of the labour market
• Industrial composition – e.g. finance in some places, hospitality in others
• Occupational composition – e.g. managers in some places, entry level in
another
• Firm size distribution – e.g. big firms
• More productive firms and HQ functions
Place effects are big, but what drives them?

10. 10
@resfoundation
Labour market size does matter, but less than you might think
Scatter of place effects (vertical axis) and log size of local labour market size (horizontal axis): England, 2013
- 2020
Notes: We show the results from the AKM without time variant individual controls. For full methodology, see Annex 1. Bubble size reflects number of jobs in each
area
Source: Analysis of Longitudinal Educational Outcomes (LEO), 2013 to 2020.

11. 11
@resfoundation
Decompositions leave much unexplained
Comparison of decompositions of industry, occupation and firm size: England / GB
Notes: For full occupational decomposition methodology, see Annex 1.
Source: Analysis of Longitudinal Educational Outcomes (LEO), 2013 to 2020 & Annual Survey of Hours and Earnings (ASHE).

12. 12
@resfoundation
The top firms and their HQs are very unevenly distributed
Top 20 travel to work areas by number of FTSE headquarters: UK
Notes: FTSE 100 and FTSE 250 firms excluding investment trusts and overseas HQs
Source: RF analysis of LSE and Companies House Data

13. 13
@resfoundation
• Big aggregate gains to be had from getting more workers within reach of
the best jobs
• Concentrate housebuilding in the best labour markets
• All kinds of housing – including social and affordable
• Lots of the extra wages will be eaten up as rent
• Tax housing properly
• Permanent boost from experience in the best labour markets
• Think again about how to move the best firms around:
• Avoid US-style corporate subsidy arms races
• Anchor firms (e.g. BBC, Nissan)
• Clusters (e.g. Canary Wharf)
Policy implications

14. Wifi
2QAG_Guest
Welcome_Guests #RegionalPay June 23, 2025
@resfoundation
The pay postcode lottery
What is driving Britain’s place-based wage divides?
Xiaowei Xu, Senior Research Economist at the Institute for Fiscal
Studies
Henri Murison, Chief Executive at The Northern Powerhouse
Partnership
Rachel Taylor, UK Government and Health Industries Leader at PWC
Greg Thwaites, Research Director at the Resolution Foundation
Chair: Ruth Curtice, Chief Executive of the Resolution Foundation

15. @TheIFS
Comments on ‘The
Power of Place’
Xiaowei Xu, IFS
 June 2025

16. © Institute for Fiscal Studies
Two main comments
1. What is a place effect?
2. What are the policy implications?
Draws on my new report (out today):
On the Move: How young people’s mobility responds
to and reinforces geographical inequalities

17. © Institute for Fiscal Studies
1. What is a place effect?
People versus place
Place effects bigger than previously thought
Young workers
New techniques
People = place?
High-skilled people attract (and create) high-paying
firms: people  place
High-skilled people move to where opportunities
are: place  people

18. © Institute for Fiscal Studies
Graduates move to high-paying cities
Net migration age 16 to 27 (vertical axis) by ‘place effect’ (horizontal axis)

19. © Institute for Fiscal Studies
Top achievers from outside London move (to London)
Probability of moving (left) and share of movers going to higher-paying TTWAs
(right), age 16 to 27

20. © Institute for Fiscal Studies
Youth mobility is increasing, especially for graduates
Probability of living outside TTWA of origin relative to 1986 birth cohort, controlling
for observable characteristics

21. © Institute for Fiscal Studies
2. What are the policy implications?
Bringing people to jobs, or vice versa?
 Building houses in productive places and promoting early-career
moves
 Incentivising firms to relocate
My personal view: needs to be more of the latter!
 High-skilled people don’t return to their hometowns
 1 in 3 workers who moved to London in early 20s leave by 32
 But majority (62%) move to a new TTWA; half of these to TTWAs that border
London
 Those who return are lower-skilled
 Concentration of opportunity in London wastes talent
 More than half of graduates in Cumbria and Lincolnshire are not in graduate jobs
 Graduates from less advantaged families are less likely to move to London

22. © Institute for Fiscal Studies
In summary
Important new research investigating what drives
successful places
Regional growth is a coordination problem – need
both people and place (firms)
And need to spread opportunity more widely
Thank you!

23. The Institute for Fiscal Studies
7 Ridgmount Street
London
WC1E 7AE
www.ifs.org.uk

24. Wifi
2QAG_Guest
Welcome_Guests #RegionalPay June 23, 2025
@resfoundation
The pay postcode lottery
What is driving Britain’s place-based wage divides?
Xiaowei Xu, Senior Research Economist at the Institute for Fiscal
Studies
Henri Murison, Chief Executive at The Northern Powerhouse
Partnership
Rachel Taylor, UK Government and Health Industries Leader at PWC
Greg Thwaites, Research Director at the Resolution Foundation
Chair: Ruth Curtice, Chief Executive of the Resolution Foundation