Posted by Teresa Schlueter, LSE and
SERC
Everyone
knows that both wages and the cost of living vary a great deal across the UK. There’s
a lively debate about this, not least rows about benefit cuts and the 'bedroom tax'. Many commentators think workers on low or
moderate incomes living in high price areas face an affordability problem.
Others argue that these areas are more desirable places to live, workers might
face lower real wages - but get better amenities in return.
These
debates miss some important questions. For example, what’s the effect of real
wage differences on the hours people work? To get by, poorer workers in
high-price areas might have to work longer hours than similar workers in
cheaper places. Alternatively, high-income people in high-price areas might
trade off cash for leisure time. Understanding these choices helps policymakers
understand just how ‘liveable’ some cities are.
In
a recently published SERC Discussion Paper I study the effects of differences in
the regional real wage on labour supply. I use information on individual
workers who move across different labour market areas, which allows me to see how
working hours change when people change address.
Regional
differences in working hours are quite substantial: in North West Devon the
average is 31 hours per week, whereas people in Rugby work about 4 hours more
per week. Similarly, the share of part-time workers in the workforce ranges
from 23.4 % in Newbury to 44.7 % in North West Devon.
I
then test the connection between real wages and working time, using a real wage index calculated by Steve Gibbons, Henry Overman and Guilherme
Resende. I find that workers who move to lower real wage areas
increase their working time: a 1000 Pound change in the annual real wage puts
about 10 minutes on the working week.
I
also find that workers in nicer places put in more hours, not less. Attributes
that make an area a nicer place to live (e.g. sunshine duration) increase
working hours whereas attributes that make an area a less nice place to live (e.g.
a lot of rain fall) decrease working hours.
As
you would expect, these links matter more for lower skilled workers (who are
likely to earn less). A low skilled worker who moves to an area with low real
wage increases his working hours by about 0.5 % more than a high skilled worker.
Low skilled workers work up to one hour longer per week than high skilled
workers when moving from the highest to the lowest real wage labour market.
All
of which suggests affordability is the key consideration for people living in
high-cost cities. High-skilled
workers pay for amenities in monetary terms only, low skilled workers who have
generally lower incomes also “pay” by reducing their leisure time.
