Cities failed to boost women’s wages relative to men after the 2008 Financial Crisis – but there is hope

Workers earn higher wages in cities than in rural areas: This is the so-called urban wage premium. However, 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. Though the gender pay gap has been decreasing, it remains high at 7.7% for full-time workers in 2023, according to the Office for National Statistics (ONS) ¹ . Given the emphasis on reducing it further, it is worth exploring whether working in cities may boost women’s wages relative to men.

My new research, published in Regional Science and Urban Economics, investigates whether the urban wage premium in Britain differs by gender, based on rich data from ONS on 200,000 individual workers, their wages, the jobs they do and where they do them.

The relative benefits of cities for women versus men have disappeared since the Financial Crisis.

Although the urban wage premium was more than twice as large for women as for men prior to 2008 (2.8% versus 1.2%), this difference disappeared during the Financial Crisis as women’s urban wage premium drastically and permanently dropped. Now, for both genders, employees of the same age and working in similar jobs in the same industry earn only about 1% more per hour in cities than in rural areas. What seemed like a real avenue for women’s wage progression and reducing the gender pay gap no longer exists.

What has happened to the “city effect” on women’s wages?

The research finds evidence that advantages such as the greater availability of childcare or better public transport that traditionally disproportionately benefited women working in cities are no longer translating into significantly higher wages in cities for women. This could mean that these shared facilities have lost their value, due to prohibitive prices or low quality in cities. It is telling that this change occurred post-2008, when policies included cuts to childcare initiatives that are predominantly located in urban areas. This month marks the second phase of the expansion of the Government’s subsidised childcare offer, with nine-month-old children now eligible for 15 hours of funded childcare per week.We can hope that expanding eligibility will translate into increases in wages for women working in cities as mothers will be able to make use of childcare facilities again. This in turn should lead to us seeing a favourable shift in the gender pay gap when looking at the national picture.

On the gloomier side, the research also casts light on a worrying trend related to women moving to rural areas from a city. Women and men differ greatly in the wage growth they experience during job transitions from urban to rural jobs. Women switching from an urban to a rural job incur a wage growth penalty, which is related to having to match with the wrong occupation and with a lower-paying employer. This is a long-term problem that existed before 2008. In contrast, and this is a new phenomenon observed post-2014 during the recovery from the crisis, men experience a wage growth increase when they transition out of an urban job. They also tend to switch to higher-paying employers. This implies that compared to men, women are particularly constrained in the type of occupation and employer that they can obtain in rural areas, which is bad news for the gender pay gap.

This is possibly rooted in a number of factors. First and foremost, the types of jobs available in rural areas may not be aligned with the jobs that the relocating women were previously performing in the city, because, for example, they are male-dominated occupations such as industrial jobs. Secondly, there may be some gender pay discrimination from rural employers, even if the woman does not change occupation, which leads to lower wage growth. Importantly, many women who relocate to rural areas do so within a family decision. The limited access to childcare in rural areas combined with gender norms that still put the mental load of child rearing on women mean that women with children in rural areas often choose a job that is close to where their children spend the day, rather than the best possible job that will enhance their wages and career progression.

Therefore, it is especially important to expand access to childcare in rural areas and ensure that it is located close enough to jobs. This would make a big difference to women’s wage progression, not least because women living in rural areas could benefit from the expansion of free childcare hours just as their urban counterparts. However, the expansion has not been without its challenges, as the Women’s Budget Group has frequently highlighted. Years of underfunding the childcare sector, combined with persistent issues like high staff turnover and low wages, have left many providers struggling to meet the increased demand and offer the additional hours. Now, it falls to the new Labour Government to fulfil the promise made to parents— and women in particular—by ensuring the sector is adequately funded and staffed.

Sabine D’Costa is a senior lecturer in economics at the University of Westminster. She researches in the fields of economic geography and urban and regional economics. She has also previously worked at Queen Mary University of London and the London School of Economics.  

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The views and opinions expressed in this blogpost are those of the author’s and do not necessarily reflect the official policy position of the Women’s Budget Group.