Financial incentive for workers to live in cities has fallen dramatically: New research

In a dramatic turnaround over the past decade, white-collar workers are now generally no better off living in a capital city than a regional area, whilst blue-collar workers are around $8,000 worse off if they live in a major capital, according to new research by the e61 Institute.

Knowledge economy workers, such as doctors, accountants, and graphic designers, have traditionally been significantly better off when living in major cities due to superior job opportunities. However, e61’s new report ‘The Lucky Country or the Lucky City?’ finds the financial incentive for knowledge economy workers to work in the city is falling over time once housing costs are factored in.

In 2022 they were only $700 better off than their regional counterparts despite earning $13,730 more. A decade earlier, in 2012, knowledge workers were net $11,150 better off per year in the city.

For care and service workers, such as paramedics, childcare workers and administrative assistants, living in a major city is even more of a financial net disadvantage. They earn on average $2,620 more in a city but are overall $8,250 worse off than regional counterparts who pay less for their housing.

Industrial workers, such as truck drivers and labourers, earn about $1,000 less on average in the city and are closer to $10,000 worse off than their regional counterparts, after accounting for housing costs, the study finds.

The dramatic decline in the past decade has corresponded with huge numbers of workers leaving Sydney and Melbourne. Between 2016 and 2021, a net of 130,000 people left Sydney and 25,000 left Melbourne each year for other parts of Australia. For Sydney, the population would have shrunk without overseas immigration.

This research follows the trajectories of workers of different occupations, ages, and locations through extensive use of individual-level data. The use of granular data allows us to better understand the nature of the urban wage and housing premia and to identify the migration flows occurring in response to changing locations of opportunity.

“This research shows the equation facing Australian workers has changed significantly over the past decade when deciding to live in the city or the regions,” said e61 Research Director Gianni La Cava.

“In deciding where to live, people need to weigh up the wages they can expect to get over their lifetimes and the housing costs that they will likely pay. In many cases higher wages are not enough to offset the higher housing costs associated with living in the city. Small wonder we are seeing workers in their thirties leaving Sydney and, to a lesser degree, Melbourne.

“Where previously it was common for industrial workers to move out of cities, we are now seeing all types of workers, including managers and professionals, leaving Sydney and Melbourne.

“The flight from the city may have been exacerbated by the pandemic, but it began earlier. This research indicates one primary driver could be basic financial rationality.”

Dr La Cava said the implications on productivity could be mixed.

“It’s a major worry for national productivity if well-qualified workers are moving away from the highest-paying and most productive job opportunities that in many cases still concentrate in cities,” he said.

“On the other hand, it does represent an opportunity for Australia's regional areas to attract and retain relatively high-income knowledge workers who could stimulate their economies.

“At any rate, it should be a priority of governments to allow people to live affordably near highly productive job opportunities. This likely means easing zoning constraints, abolishing stamp duty, and ensuring immigration policy aligns with housing policy.”