The evolution of the UK north-south divide: should we mind the gap?

Abstract

Data on average regional earnings point at a worsening of UK regional inequalities and a rise in the North-South gap. In this paper, we decompose regional inequalities in the UK and apply earnings equations for UK regions over 1982-1997. We find evidence of rapid convergence across regions regarding the determinants of individual wages (i.e., regional fixed-effects, gender gaps and returns to education and experience). Education accounts for most of the discrepancy between aggregate divergence and disaggregated convergence. First, London gained because its workforce became relatively more educated over the period. Second, returns to education increased nationwide, which favoured the most educated regions (i.e., London). Third, returns to education were initially lower in London but they (partially) caught up with the rest of the country. Had returns to education and their distribution across UK regions remained stable over the period, the UK North- South divide would have decreased