Mind the Gaps: The Evolution of Regional Earnings Inequalities in the U.K., 1982–1997

In this paper we apply earnings equations for U.K. 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). In contrast, data on average regional earnings point to a worsening of U.K. regional inequalities and a rise in the North-South gap. 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 favored 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 U.K. regions remained stable over the period, the U.K. North-South divide would have decreased.