Australia is a lucky country – central to this has been a perception that a ‘fair go’ exists regardless of where you live or where you are born. But economic opportunity varies across the country. In this report, the e61 Institute investigates how the geographic distribution of opportunity has changed over the 21^st century.

This report makes extensive use of micro data. We follow the trajectories of workers of different occupations, ages, and locations to better understand how wages and housing costs vary between the cities and regions and to identify the migration flows occurring in response to changing locations of opportunity. We find that:

1. Movers to the city get an instant and permanent pay rise: On average, city-based workers earn around $8,000 more than workers in regions. Movers into a capital city, from a regional area, obtain a permanent wage boost that begins almost immediately. Around 7 years later, they are earning around $12,000 more than people that remained in the regions that were of the same age and industry, and nearly $5,000 more than their new city neighbours.
2. Industrial workers, such as tradies and labourers, are increasingly paid more in the regions than in the cities: Not all workers benefit from a city wage premium. Knowledge workers – managers and professionals – gain the most, followed by care and service workers. Industrial workers now earn around $5,000, on average, less per year than their regional counterparts. The disappearing wage premium for city-based industrial workers could be explained by the resources boom and changes in the structure of the economy such as the decline of the manufacturing sector in the cities.
3. Knowledge worker jobs have doubled in the cities: A change in the cities is well underway. In the early 2000s, there were similar numbers of people employed in knowledge, industrial, and care and service jobs. But over the subsequent quarter of a century, the employment of knowledge workers in the cities doubled.
4. Net benefit of city-living has fallen dramatically: Wages and jobs are one part of the equation; another is housing. Housing costs are on the rise in cities, particularly in Sydney. The net economic advantage of a city location is falling for many workers, including care, service, and industrial workers. Even for high-income knowledge workers, the net benefit of city life is fading.
5. Millennials are leaving the largest cities: Rising relative housing costs and weak relative wage growth in the cities may explain why people in their 30s are leaving Sydney and, to a lesser extent, Melbourne. This exodus has been particularly strong for prime-age workers in industrial, care and service jobs.
6. Overseas immigration has offset the worker exodus from the cities: Higher rates of overseas immigration are masking the decline in the population of Australia’s largest capital cities. Recent immigration in Sydney accounts for all employment growth in industrial and care and service jobs over recent decades.

What does this all mean for the future shape of our cities and regions? In this report, we highlight three potential implications:

• Risk of misallocation of labour: An outflow of young people from Sydney and Melbourne could reflect them moving from higher paying, or more productive job opportunities.
• Cities becoming less occupationally diverse: Concerns around city-region income inequality, social cohesion and political polarisation seem to not have manifested so far. However, there is a growing income gap between city-based knowledge workers and other workers.
• Opportunity for the regions: Australia’s regional areas have the potential to continue to attract and retain more workers from the capital cities.