Economic disparities have been decreasing between EU member states over the past decade, but at the same time inequality has been growing within member states. Despite national level convergence, the gap in wealth and income between the rich and the poor is growing in most of Europe. Some of this rise has been attributed to increasing returns to education pushing earnings up faster for those in jobs requiring higher levels of education – while wages stagnate for the rest. But increasing inequality is not just a matter of skills, it also relates to where one lives.

Working paper: Convergence analysis in employment and socioeconomic indicators

In a just-published joint report, researchers at Eurofound and the European Commission Joint Research Centre, demonstrate large and, in some cases, growing differences between employment structures at the region level. The analysis looks at shifts in sector and occupational employment composition in nine larger member states (and 130 regions) between 2002-2017.

A key finding is that capital city regions are generating a disproportionate share of new employment in well-paid jobs in most member states. Employment levels are growing faster in these regions as is the quality of employment – as proxied by the share of net new employment in well-paid jobs.

The advantages of large capital city regions are abundant; as centres of learning and entertainment as well as of political power and decision-making. These advantages have tended to more than match any disadvantages in terms of cost of living, cost of labour or congestion. The largest metropolitan areas benefit in particular from ‘thick labour markets’ and the opportunities provided by variety and volume of firms and employers and a matching variety and volume of qualified workers all in close proximity. Importantly, these advantages tend to be self-compounding. The things that attract firms and people to big cities in the first place are boosted in turn by further agglomeration.

And this has been especially true of service sector employment. Service sectors account for just over seven in ten jobs in the EU overall but for as much as 85-90% of employment in some highly urbanised regions. Many of these jobs are in professional, knowledge economy roles requiring high levels of education. There are for example almost twice as many employed in skill-intensive sectors such as financial services, information/communication and professional / scientific services in capital city regions compared to other regions, according to the report’s analysis.

This growth of capital city regions appears to come partly at the expense of other regions, including other urban regions, in the same country. The growth in the national employment shares of London and Brussels for example mirrors a decline in the shares of other largely urban regions in their respective countries. Economic dynamism appears to be waning in some second cities and other regional urban centres just as it accelerates in capital city regions. And in many member states, retrenchment in the public sector – on which regional labour markets have traditionally been more reliant – has sharpened this divide. These developments can feed perceptions that capital city regions are benefiting from globalisation and technological change, the very same forces perceived to be undermining the social and economic fabric outside the capitals.

Unbalanced regional growth is likely therefore to be one of the factors contributing to social and political polarisation, most evident in the emergence of nationalist, nativist and populist political parties in many member states. One contribution of this new report is to point that this is not only a cultural or political phenomenon but is likely to have its roots in the emerging geographical division of labour within advanced economies and the unequal distribution of the benefits of the ‘services shift’.

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