Regional labour markets are affected by internal migration.

In recent years the trend has been broadly a north to south flow, with populations declining in the North East and North West, but growing in the South East, South West, and East of England.

There is no reason to expect this to be reversed, although regional variations in house prices will influence the flow.

Regional variations in house prices are now very marked, and can have a significant influence on the workforce.

Recent years have seen particularly strong price increases in London and the South East, although the latest data suggest that the ‘north-south divide’ may be narrowing slightly.

Housing affordability clearly impinges on regional labour markets, particularly for first time buyers (FTBs).

As a group, FTBs are getting older (the average age is now 34 according to the Council of Mortgage Lenders, compared to 31 a decade ago), and if people choose to rent before buying, this could indicate greater mobility.

On the other hand, research is also pointing to the phenomenon of the ‘boomerang generation’, young people going to university then returning to live in the parental home for some time. This, by contrast, implies reduced mobility.

House price variations can restrict labour market mobility in other ways.

• Workers who live in low cost regions may be reluctant to move to an area where a higher portion of their earnings will be eaten up by housing costs.
• At the same time, paradoxically, people who own a property in London and the South East are often reluctant to move to areas where houses are cheaper for fear that a further widening of regional price gaps could make return difficult.

Regional variations in house prices (and indeed in other living costs) have not hitherto been properly addressed in many large employers’ (including the public sector) pay settlements, which tend to be managed on a national basis.

Although some employers pay a ‘London allowance’ the full complexity of other regional variations in living costs has proved a difficult nut to crack.

A major stumbling block is that reliable regional inflation figures have not been available.

A potentially significant development of recent years has been the growing interest, acknowledged by the Government, in producing regional measures of inflation.

Although Chancellor Brown’s initial Budget announcement does not seem to have been followed up, the development of regional price indices could open the door to much greater regional variation in pay rates.