London’s ‘Big Smoke’ bonus falling short on living costs

The latest ‘Earnings Outlook’ from the Resolution Foundation suggests the London salary premium may no longer be enough to draw workers to the capital in the same numbers as before.

London from the Thames with jetty
High housing costs are wiping out any pay rises for people moving to London from within the UK to work, according to new analysis released today from the think-tank on living standards.

Regional pay gains for moving jobs

Typically, the "Big Smoke" bonus associated with moves to the city is 18%, up from 15% in 2007/08.London’s wage premium for relocating into the capital is double the size of the next biggest typical pay rises: 9% for moving to the South East and 8% for the East of England.In contrast, the financial pay-off for moving regions across most of the North has fallen over the last decade. It is now below 5% in the North East and Wales.Nevertheless, moving jobs still attracts a bigger pay rise than staying put, at 7.3% and 2.5% respectively.

Does labour mobility tell us about wages pressure?

Citing job mobility as a leading indicator of pay pressure and barometer of the wider health of the jobs market, the Resolution Foundation notes that around 290,000 people moved jobs in the last three months of 2017. This compares to just 110,000 a quarter in the depths of the crisis.Although recovering, voluntary job moves are still far less prevalent than they were back in the early-2000s and down 15% on their pre-crisis average. While the premium for moving to the capital has grown, the share of people migrating to London has stayed the same at around a fifth of all moves.This analysis ties in with other trends and data, which suggest quality of life as well as remuneration is a key consideration when it comes to relocating domestically within the UK.
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Key conclusions from mobility data and wages pressure

The Resolution Foundation further notes that once housing costs are taken into account, typical incomes in London are lower than those in the South West, despite hourly pay being £5 higher in the capital.The living-cost push factor away from London and the South East, and the falling pay returns from moving in much of rest of the country, help explain why people are more reluctant to move regions for work than they were before the crisis, says the Resolution Foundation.It adds that noticeably higher wages in London than elsewhere in the country and much higher housing costs "should act as a double warning to policymakers of the need to both support productivity growth across the country and tackle high housing costs in the capital".

London bonus ‘an indictment of the scale of regional imbalances’

Commenting on the latest Earnings Outlook, Stephen Clarke, senior economic analyst at the Resolution Foundation, said: “A key route to a big pay rise is to move jobs, particularly if you voluntarily move to a different part of the country for work.“The biggest pay rise of all is the ‘Big Smoke Bonus’ of moving to London, which attracts a typical pay rise of almost 20%. But, despite this huge premium, people are no more likely to move to London for work than they were before the crisis.“Of course, there are plenty of positive reasons for people being comfortable working where they are. But it says something about the scale of London’s housing crisis that even 20% pay rises can’t persuade more people to move to jobs in the capital.“The uniquely high pay bonus associated with moving to London is also a pretty damning indictment of the scale of regional economic imbalances throughout Britain.”

Immigration policy and regional labour mobility trends

The Resolution Foundation’s report adds a pre-Brexit perspective on intra-regional mobility, wages growth, UK competitiveness and the cost of living. It comes the day after the Migration Advisory Committee (MAC) published its interim report on European Economic Area (EEA) workers and the UK labour market.The MAC’s chair, Professor Alan Manning, stressed the interim report should not be read as predicting the committee’s final recommendations, particularly on a regional approach to post-Brexit immigration policy. However, he pointed out that low unemployment was among the reasons employers said hired EEA workers and reducing migration would “very likely” hit UK output, adding: “Migrants have a choice and it cannot be taken for granted they will choose to come to the UK: migration flows can change very rapidly, as the fall in EEA net migration since the referendum shows."
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