According to projections made 20 years ago by the UN, at the beginning of the next decade more than two thirds of the world’s population will live in cities and one third will live in 1,400 large urban centers around the world. In some countries, these figures have been exceeded before the expected date. In the case of Spain, there has been an intense movement towards large urban areas, which has not only affected rural areas, which are increasingly depopulated, but also a growing number of medium-sized municipalities.
The social and economic consequences of this process are numerous and complex. Among them, environmental costs stand out, such as increasing pollution and noise, various health problems, including mental health illnesses, as well as higher levels of segregation and inequality. Therefore, it is reasonable to ask what will be the effects of the growth of large cities in terms of social welfare and what are the margins of public decision-makers to establish policies that promote a higher quality of life in these areas. The big question is how to get people to live in better conditions in cities. Such a question not only affects architects and urban planners, but also appeals to a better understanding of the underlying economic fundamentals and their consequences.
The evidence on the relationship between well-being and city size is limited. There are processes that are simultaneously a cause of income inequality and a consequence, at the same time, of the development of urbanization. Such was the case with industrialization in advanced countries, which initially gave rise to both a massive exodus from rural areas to the cities and marked increases in income inequality. Something similar may be happening today with the spatial accumulation of the most technology-intensive activities.
Some of the main causes of the growing concentration of population in large urban areas are the higher productivity of companies and workers there, the dynamism of the labor market and the provision of services. Agglomeration processes take place when workers move to areas with the greatest potential for economic growth, fostering the development of broader markets and a more attractive location for companies. Their arrival can boost wages and encourage new movements of workers to these spaces.
In most high-income countries there is what Anglo-Saxons call city wage premium, a particularly high premium for higher-skilled workers and certain activities, especially financial services and those with a higher technological content. The complementarity between human capital and the larger size of markets reinforces the generation of so-called economies of agglomeration and leads to a greater number of better-paid skilled workers in large cities than in other environments.
It is precisely the differences in the remuneration of work, together with the high concentration of wealth, which explain inequality in a greater percentage in large cities, although we still do not have a precise knowledge of why some places pay much more for qualification than others. The problem occurs when these differences are so great that they threaten social stability and economic efficiency itself.
The data available from the last two decades for the higher-income countries show two well-defined realities: inequality is higher in large cities than in other areas and, furthermore, its level is also higher now than at the beginning of the century. These results are confirmed, albeit with nuances, in the case of Spain. Average wages in Madrid and, to a lesser extent, Barcelona, are more than 30% higher than those of the next two most populated cities, Valencia and Seville. However, on the eve of the pandemic, according to data from the Household Budget Survey, inequality was significantly higher in the city of Madrid than in the country as a whole, while the opposite was the case in Barcelona.
The pandemic may have altered this portrait, due to some major transformations. We do not yet know, for example, if teleworking will be consolidated as the preferred option for a not inconsiderable segment of workers, which would mean a significant change in the need to work in large cities to obtain higher wages, with a possible containment of the aforementioned economies of agglomeration. More people working at home would also mean less demand for many of the services that cities offer. Alternatively, the opposite process could occur, and once the pandemic is over, the growth trend of large urban areas will resume.
The shock that we have experienced is, in any case, an opportunity to rethink large cities and some of their basic services, such as transport, education and health. The pandemic has also opened other perspectives on the different possibilities to improve the environmental quality of these centers through new green investments. In this way, the two great challenges of the fight against climate change and the fight against inequality would be combined. To face them, efficient use should be made of the new European funds to promote more inclusive and sustainable dynamics in large urban areas.
Luis Ayala He is Professor of Economics at UNED.
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