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"Why are wages higher in London?"

I need help with this question. I guess it means in comparison with other areas of the UK. Any advice on where to start?

Reply 1

Kendra

2

Start simple, supply/demand.

London there's a high demand for jobs, lots of institutions compared to other regions of the country.

Added to that, there's a high demand for skilled workers, and since there's a higher investment in human capital, there's higher returns (i.e. people are paid more), but the demand growth for skilled workers has exceeded the supply growth of skilled workers.

Reply 2

Smudge_Leic

The cost of living in London is also considered to be considerably higher. The job I am doing at the moment, an admin job for a government department, pays around £13,000 in Leicester. The same job in London pays £16,000 a year, the extra £3,000 is considered a living allowance. Hope that helps.

Reply 3

RJA

2

Ye, living costs is a main reason...

Reply 4

trevthetrev

1

Hmm, the supply and demans argument sounds right, but surely living costs are higher because of the high wage, not the other way around. Or is it? :eek:

Can't get my head around it.

What about the efficiency wages? The firms based in London fit the description of firms who would use such schemes, with high turnover costs and incentives to shirk incorporated in daily work. There is an incentive to keep good workers in London and within the own company, and higher wages might persuade them not to move. A weak argument, I know, but might be a contributing factor :biggrin:

Reply 5

Clubber Lang

15

trevthetrev

Hmm, the supply and demans argument sounds right, but surely living costs are higher because of the high wage, not the other way around. Or is it? :eek:

Can't get my head around it.

What about the efficiency wages? The firms based in London fit the description of firms who would use such schemes, with high turnover costs and incentives to shirk incorporated in daily work. There is an incentive to keep good workers in London and within the own company, and higher wages might persuade them not to move. A weak argument, I know, but might be a contributing factor :biggrin:

The wages are higher because of 2 reasons

The living costs - these are high because a lto of the good **** is in london, its the capital and also the biggest paying jobs are there.

The pay is high because of living costs but also because most head offices are in the City and the money is there.

So theyre connected i would say.

Reply 6

trevthetrev

1

jojo72

The wages are higher because of 2 reasons

The living costs - these are high because a lto of the good **** is in london, its the capital and also the biggest paying jobs are there.

The pay is high because of living costs but also because most head offices are in the City and the money is there.

So theyre connected i would say.

But it is due to the high level of high earners that prices are allowed to inflate, I just can't see the reverse causation being a big part of it. I think it might be a case of high wages causing high prices, and the high prices causing wages to rise only as a secondary effect, with much weaker impact.

Does unskilled, small enterprise workers earn more in London as well? Say for example a shopkeeper or a janitor, are their wages equally inflated? Does anyone have a qualified guess? Because if that is the case that would strongly support the "high prices yeild high wages argument", and if that were not the case the "high wages yeild high prices" should be more likely.

Reply 7

RJA

2

Taken from here: http://www.statistics.gov.uk/cci/nugget.asp?id=1438

London had the highest percentage of individuals who belonged to the top fifth of household income in Great Britain, both before and after taking account of housing costs. As an effect of the high housing costs in the region, the proportion of Londoners in the upper fifth (income quintile) decreased by 3 percentage points in 2003/04.

Despite the high overall level of income in London, the region had over a quarter of individuals in the bottom fifth (quintile) of the income distribution for GB as a whole, after taking account of housing costs. There was an increase of 5 percentage points in the proportion of individuals ranked in the bottom fifth, once housing costs had been taken into account. London had the largest change in proportions, at both ends of the income scale, when housing costs were taken into account.

Does this high proportion of poor people mean that the wages of more medial jobs are less inflated than the high end jobs?

More links:
http://news.bbc.co.uk/1/hi/business/4319239.stm
http://www.london.gov.uk/view_press_release.jsp?releaseid=8090
http://www.london.gov.uk/view_press_release.jsp?releaseid=4987
http://www.livingwage.org.uk/
http://www.thisislondon.co.uk/news/article-23367598-details/Half%20of%20homeowners'%20wages%20swallowed%20by%20mortgage%20repayments/article.do

Reply 8

Clubber Lang

15

trevthetrev

But it is due to the high level of high earners that prices are allowed to inflate, I just can't see the reverse causation being a big part of it. I think it might be a case of high wages causing high prices, and the high prices causing wages to rise only as a secondary effect, with much weaker impact.

Does unskilled, small enterprise workers earn more in London as well? Say for example a shopkeeper or a janitor, are their wages equally inflated? Does anyone have a qualified guess? Because if that is the case that would strongly support the "high prices yeild high wages argument", and if that were not the case the "high wages yeild high prices" should be more likely.

A person eearning £6 at Tesco in Liverpool will earn more in London (say £6.50) because the living costs are higher there - so its a vicious cycle in effect - there are way more poor/avg paid people in London than mega rich ones so I would say things like price/property are high because of demand - more people want to live in London. People then have to pay for their houses so wages are slightly higher and therefore products in shops cost a little more.

I would say its a mixture of the 2 and they are interlinked - you would probably have to go back years and eyars to find the links - even then it may not be clear what came first - high wages or high living costs.

Reply 9

Rosicky88

1) PED
2) More higher skilled workers in London, more well-paid jobs going, which brings up the average
3) Regressive Labour Supply Curve

Reply 10

trevthetrev

1

Yes, I would actually say that this points towards the "high wage yeilds high costs" argument, as even though people might chose different kinds of housing (there might be a disproportionate relationship between income and spending on housing), it is still an indication that low income earners do not enjoy the same level of inflated wage as the high income earners.

Thus I would suggest that high wages in london are caused by high level of skill in workers, and this has caused prices to rise, especially in inelastic local goods for the area (housing, food, other services). The fact that low income earners tend out to earn relatively less when housing costs are included seems also to show that when we say "high average wages in London" it is actually higher pay for the high income earners, while the low income earners seem to earn, in absolute values, pretty much the same.

Whew, that felt good. Does that make sense to anyone else?

Nice job finding that info RJA. Eat my rep :biggrin:

Reply 11

sr4470

15

Space is at a premium which is a significant factor in the high housing costs. As for wages, most of the big business in the country is based in London (in particular, its a large financial and legal centre)

Reply 12

RJA

2

trevthetrev

Nice job finding that info RJA. Eat my rep :biggrin:

Thanks! Backatcha...

"Why are wages higher in London?"

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