Across the OECD, cities are engines of economic growth. They attract investment, create high‑value jobs and generate most of national wealth.
Yet for millions of their residents, this prosperity remains out of reach. In many cities, economic growth has continued while poverty has remained high, housing has become less affordable, and too many people are locked out of opportunity.
This disconnect sits at the heart of the OECD’s new report What Works for Inclusive Growth in Cities. Drawing on evidence from more than 600 EU cities, the report explores a simple but increasingly important question: if growth alone is not enough, what actually helps more people benefit from and contribute to it? Alongside this evidence, the report offers a practical roadmap and examples of good practices that city leaders can adapt to their own local contexts.
The answers are, in some cases, surprising. Many policies with the highest long-term returns for cities are not about attracting foreign investment or supporting businesses.
Instead, they give children a better start in life, connect people to jobs, make housing more affordable and redesign public services around people’s needs. Far from competing with economic growth, these policies help make it more resilient and broad-based.
Economic growth is not broken in cities, but the link to opportunity is
Cities remain extraordinary engines of growth. Between 2013-21, they generated 73% of economic growth across the OECD. But OECD analysis shows that across more than 600 EU cities, higher productivity and GDP do not consistently translate into lower poverty or greater opportunity.
Barriers in education, labour markets, transport or healthcare can mean residents are disconnected from the opportunities in their cities. High housing costs further widen these gaps by making it increasingly difficult for lower-income households to live close to jobs and services. In many EU countries, once housing costs are taken into account, urban poverty rates more than double.
The lesson is that cities cannot assume growth will automatically translate into broader prosperity. Connecting people to opportunities requires deliberate policy choices.
Housing costs are pushing more urban households into poverty
Note: The at-risk-of-poverty rate is the share of people whose equivalised disposable income (after social transfers) is below the at-risk-of poverty threshold, which is set at 60% of the national median equivalised income. Housing costs are accounted for by subtracting housing related expenditures (e.g. rent, energy bills) from household disposable income. Degree of urbanisation uses the EU Nomenclature of Territorial Units for Statistics (NUTS) and local administrative unit (LAU) level classification, calculated based on population density and settlement size.
Investing in children’s earliest years delivers the biggest returns
The highest return economic policies can begin before children even start school. Every year childhood disadvantage costs OECD economies in the EU an estimated 3.4% of GDP through lower employment, weaker earnings and poorer health outcomes. Yet investments in children’s earliest years rarely feature in cities’ economic policy.
By the time children arrive at school, inequalities in language, cognitive development and social readiness are already well established. These early gaps influence educational achievement, employment prospects and lifetime earnings.
These disadvantages accumulate over time, becoming increasingly difficult and expensive to reverse. They also shape the future productivity of cities and ultimately erode the local tax base to fund the next generation of public services.
Seen through this lens, early childhood policy is not simply “social” policy but long-term economic policy. Cities are beginning to act on this logic. Barcelona’s Shock Plan Against School Segregation reorganised school admissions to reduce socio-economic segregation and educational achievement gaps for disadvantaged pupils narrowed by nearly 3 points in standard tests.
In London, Camden’s Family Hubs Pregnancy Grant recognises that supporting families during the first 1 000 days of a child’s life can shape outcomes for decades beyond infancy.
Better outcomes do not always require bigger budgets
Tackling inequality is often assumed to require major new spending. Yet many successful cities have redesigned existing services rather than expanding them.
Barcelona reduced school segregation of disadvantaged pupils largely by changing admissions rules, without major capital spending. France’s Territories with Zero Long-Term Unemployed People programme takes a similar approach. Instead of paying out long-term unemployment benefits and other social spending, the programme redirects the same resources towards creating permanent jobs that meet local needs.
These examples also point to a broader lesson. The biggest gains often come not from spending more, but from using existing resources differently: redesigning services, simplifying delivery and ensuring public investment reaches the people who need it most.
The most successful cities design services around people’s lives rather than government departments
An OECD survey of over 70 cities found that improving access to education and reducing inequalities rank among cities’ highest priorities. Yet around 60% still pursue these goals through separate departmental structures with economic development, housing, education and social policy operating independently.
The cities making the strongest progress are often those breaking down these silos. Stockholm’s integrated regeneration of Järva combines housing renewal with education, employment and public services. Cluj-Napoca’s neighbourhood regeneration links Housing First with wider efforts to reduce segregation.
Düsseldorf has embedded participatory neighbourhood planning into broader urban development strategies. Their common feature is not simply better co-ordination between departments, it is a shift towards designing policies around the people and places facing the greatest barriers to opportunity, making public services easier to access, more responsive to local needs and ultimately more effective.
Cities need a broader economic strategy
Perhaps the biggest lesson is that inclusive growth is not a separate social agenda sitting alongside economic policy, but rather it is economic policy itself.
Cities that fail to expand access to opportunity waste potential, weaken productivity and reduce their capacity for long-term growth. While cities that invest in children’s earliest years, connect residents to jobs, improve access to affordable housing and integrate public services are not simply reducing inequalities but strengthening the foundations for future prosperity.
The evidence suggests that the most effective economic strategies are those that widen access to opportunity as well as raise productivity. The challenge for city leaders is no longer to simply grow their economies, but to ensure that more people can contribute to, and benefit from, that growth.
Elizabeth Doherty is an Economist in the Inclusive Growth in Cities Unit at the OECD, where she where she analyses economic strategies to strengthen local prosperity and reduce multidimensional urban inequalities. She previously worked for the UK Government, including in the Growth and Places Analysis Team at the Ministry for Housing, Communities and Local Government. She has also worked as an Economics and Climate Associate in Amsterdam. Elizabeth holds an MSc in Economics from UCL and a BSc in Economics and Politics from the University of Bristol.