THE URBAN WAGE PREMIUM IS GREATER FOR WOMEN: New UK evidence and an explanation

14 Apr 2021

We know that workers experience higher wages in cities than in rural areas. This is the so-called ‘urban wage premium’, which has been measured for workers in countries across the world. But little is known about the relative benefits of cities for women compared to men and whether this may provide clues for policies to reduce the gender pay gap.

New research by Sabine D’Costa (University of Westminster) and Almudena Sevilla (UCL) investigates whether the urban wage premium differs by gender and shows that in Britain, this phenomenon is 43% larger for women than it is for men. While male employees of similar age and working in similar jobs in the same industry earn 2.3% more per hour in cities than in rural areas, women employees earn 3.3% more in cities than similar women in similar jobs in rural locations. For women therefore, urban jobs represent a particularly important opportunity to increase wages.

This phenomenon is not only observed in very large cities such as London. Or course, the wage premium from working in London is the largest, with men earning 7.1% more there than in equivalent jobs in rural areas and women earning 9.3% more in London. But the urban wage premium is consistently larger for women than for men, for large cities as well as for the category of smaller cities. This is also not due to traditional gender differences in occupational choices, public sector employment or hours worked.

Moreover, the research reveals that although both men and women of higher productivity and ability tend to work in cities, this selection is more pronounced for men. More able, productive or ambitious women are less likely to work in cities, compared to productive men.

So what explains why women benefit more from cities than men?

The authors’ key finding is that women’s wages increase more than men from the opportunity to change occupation at the same time as they switch from a rural job to a job in a city. Occupational upgrading, when occurring at the same time as a transition to an urban job, explains about 30% of British women’s urban wage premium and accounts for the gender difference observed in the data.

The research has direct implications for the gender pay gap, which is currently at 7.4% between men and women in full-time employment and still largely unexplained. The study, based on a large, representative ONS survey of British workers between 1998 and 2008, explores a new factor in gender pay differences: differences in the role of cities.

The finding that productive women, wherever they may be living, have a lower propensity to work in cities than productive men suggests greater barriers for women to gaining higher-paid urban employment, in the form of commuting or childcare constraints, or gender attitudes. The way forward to help close the gender pay gap is therefore to take corresponding local measures to facilitate their access to urban jobs.

In addition, the researchers show that cities offer women an opportunity to improve their job match and obtain a higher wage by switching to a more appropriate occupation corresponding to their skills (more than for men): this raises an important shortcoming of rural labour markets that do not function efficiently for women and calls for a range of place-based policies improving both women’s practical access to jobs farther away from home and their job search through networking schemes, employment support and coaching.

This will be even more crucial when developing post-Covid crisis policy responses to widening economic differences between men and women.

Prof Almudena Sevilla

Chair of Women's Committee (co-opted) | University College London

Almudena Sevilla is a Professor of Economics and Public Policy at UCL. She holds a £2M ERC Consolidator grant to study the effect of parental time investments and children's human capital accumulation. Almudena obtained a PhD in Economics from Brown University (USA), and previously worked at QMUL, University of Oxford, Essex University, and the US Congressional Budget Office.

Dr Sabine Costa

Senior Lecturer | University of Westminster | s.dcosta@westminster.ac.uk