For many years, mobility was touted as the great leveler that would address regional inequalities. If you couldn’t find a job, you could move to where there was work, rather than staying in a region where the chances of building a career was limited. Place-based policy has been about supporting successful places to continue to expand and ensure that more people can move to them.
Today, the policies borne out of this approach are falling short. Labour mobility in OECD countries typically is much lower than one might expect and has been decreasing in recent decades. Those that can move – the better skilled and more enterprising – generally do. Those that remain, find themselves struggling in regions spiraling further and faster into a vicious cycle of decline.
Disadvantaged places are falling further behind
The OECD Regional Outlook 2023 shows that metropolitan areas are galloping ahead with GDP per-capita averaging 30% more than other regions in most OECD countries.
The Ile-de-France region, with the capital Paris in its borders, outstrips all other regions in France in terms of productivity. In the U.S., metro areas that make up 72% of the country’s population, accounted for 95% of GDP growth between 2011-20. Greater New York, San Francisco and Los Angeles made up for one-third of the country’s GDP growth during this same period.
Some places are falling so far behind they are struggling to catch up with their better-off neighbours. Take Latvia for instance: there, lagging regions would have to grow twice as fast as they did over the last twenty years just to maintain their distance from top regions. And mega-trends and shocks like Russia’s war of aggression against Ukraine, the climate crisis, and digitalisation risk widening these geographical inequalities even more.
A look at inequalities on the ground
How do these inequalities play out in everyday life? In Germany, which managed to reduce regional gaps over the last 20 years, top-performing regions still have nearly double the income-per-capita that low-performing regions do. Korea has also significantly reduced regional divides, but the top performing region still has an income-per-capita 1.6 times higher than the lowest.
Poor digital infrastructure drags down productivity in left-behind regions even more. Cities have 40% faster fixed internet on average in the OECD than areas far from their orbit. This impacts business growth and the potential for digital services to plug public service gaps in remote areas. Mexico and Canada are a case in point, where people in rural areas have connection speeds 40 percentage points slower than the national average. In 26 OECD countries, one-in-three rural households, on average, still do not have access to high-speed broadband.
Poorer regions are losing out on the jobs benefits of the net-zero transition as well. While around a third of jobs are green in Stockholm, Luxembourg, Paris, London and Oslo, this figure is far lower in poorer and remote regions that need extra help to push up their productivity levels. Disadvantaged areas also tend to have more polluting jobs. As the move to net-zero economies accelerates, countries’ industrial strategies need to do more to ensure left-behind regions benefit.
Meanwhile, disadvantaged regions have to contend with rapidly ageing populations, with old age dependency ratios above 50% on average in remote regions. In countries like Japan, the share of the elderly population is expected to increase across all types of regions in the coming decades.
Closely connected to this age differential are health service disparities. Nearly a third of rural residents in OECD countries reported health problems that stopped them from doing things people their age normally do while only a quarter of city residents reported the same. And hospital beds per capita – a classic healthcare metric – dropped 17% in remote regions between 2001-21 but rose 13% in metropolitan areas in OECD countries.
These acute regional divides result in worse outcomes and wasted talent in disadvantaged regions. This sense of unfairness breeds a troubling geography of discontent. It inflames intergenerational conflict. It erodes trust in democracy.
Time to play catch-up
Some OECD countries are bucking this trend of widening regional inequalities. Finland, Norway, Germany, the Netherlands and New Zealand are above-average GDP per capita countries that have reduced income inequalities from region-to-region.
In Finland, some of its remote regions have boosted productivity by becoming more capital-intensive and focussing on bio-economy. But while Finland’s remote regions, some of which are rich in natural resources, are enjoying rising income levels, they are still losing people to cities.
How can better policies help get disadvantaged regions back on their feet? Based on two decades of comparative data of increasing granularity, the OECD Regional Outlook 2023 highlights the need for better access to public services; better infrastructure to boost productivity and competition; better local skills development; better co-ordination of multi-level governance systems; and better subnational fiscal and strategic capacity.
None of these policy changes will rebalance geographical inequalities in an instant. But together they can slow the decline of regions left behind, and with enough time, begin to reverse it.