Increasing returns: evidence from local wage rates in Great Britain

This paper shows that wage rate variations among local areas of Great Britain are significantly positively related to employment density, and argues that this is due to the presence of increasing returns deriving from more varied producer services in denser areas, controlling for the effect on wages of good access to an efficient workforce, either locally or as a result of in-commuting. The higher wages in Greater London in particular are seen to be linked to increasing returns and enhanced worker efficiency, although other central city areas show similar influences to a lesser degree, with in-commuting a significant factor.