The analyses and indicators in this report underscore the critical importance of adopting a place-based and granular view of our economies. Whether climate, technological, or demographic changes, or the impact of shocks, a detailed look beneath national statistics often reveals a more nuanced and diverse picture. This calls for a broader range of tailored policy actions.
The importance of granular sub-national data has become even clearer in light of recent crises and accelerated transitions, given their often significant and asymmetric spatial impacts. As in previous years, this report offers fresh and timely evidence on these spatial disparities. One innovation that deserves particular mention in this year’s edition is the use of sub-national inflation estimates, reflecting the historically high inflation rates of recent years. This approach not only highlights, for the first time, spatial differences in inflation but also illustrates how these variations affect spatial trends in real growth, productivity, and income. For many lagging non-metropolitan regions, where GDP per capita gaps with metropolitan regions have recently narrowed or stabilised, the analysis reveals that price changes, rather than within-industry productivity growth, have been key drivers.
The data also provides new insights on the impact on households, highlighting for example the disproportionate impacts that rising housing costs have on urban residents. Housing costs in large functional urban areas (FUAs with over 1.5 million inhabitants), increased by 68% over the past decade, meaning that in 2023, housing in large FUAs was 86% more expensive than in very small FUAs (with less than 100 000 inhabitants). Within-country real income growth gaps also increased: the gap between regions with the highest and lowest household income growth widened from an average of 2.6 percentage points to 3.6 percentage points between 2014-2018 and 2019-2022 in 10 OECD countries with available data.
The report also provides timely insights across many on-going and mega-transitions.
Demographic changes pose a long-term threat to growth and productivity, as labour shortages intensify across OECD regions. In the next decade, 54% of metropolitan regions, and 74% of regions near midsize or large FUAs, and 64% of regions far from a midsize or large FUA are projected to face a shrinking workforce. The report identifies measures to mitigate these impacts. For example, raising women's labour force participation to match that of men within the next decade would reduce the share of regions with a declining workforce to 13% of metropolitan regions, 24% of regions near a midsize or large FUA and 20% of regions far from a midsize or large FUA.
Climate change continues to exert strong spatial and asymmetric impacts. The year 2023 was the hottest on record, with the most pronounced effects observed in polar and cold regions, where temperatures increased more than twice as much as in OECD arid regions (2°C vs 0.8°C). Actions to curb production-based carbon emissions, including electrification and transitioning towards low-carbon electricity generation, also exhibit significant spatial variation. Regions far from FUAs have been slower to reduce emissions than metropolitan regions and regions close to them, partly due to persistent challenges in cutting emissions in agriculture and transport. Methane emissions, meanwhile, remain concentrated in a small number of regions specialising in fossil-fuel extraction, primarily in North America. Managing land use and transitioning towards low-emission transport will also be crucial for the net-zero transition. Between 2010 and 2020, globally, built-up areas expanded by an amount equivalent to Austria, with rural areas and small cities showing a stronger inclination towards unsustainable land use. Notably, even remote regions experiencing population decline saw their built-up area increase by around 11% during this period.
Promoting public and active transport can make cities more liveable and inclusive while reducing emissions. Although public transport usage is relatively high in some capital cities, most commuters in FUAs (3 out of 4) still rely on cars to get to work. Moreover, 74% of people in cities can walk to a primary school and a childcare facility in 15 minutes, whereas only 36% of people in suburbs can. Similarly, only 56% of people in suburbs can walk to public transport in 10 minutes compared to 84% in their corresponding cities. The uptake of remote work could help to reduce commute frequency, but this requires improving Internet connectivity. Broadband download speeds are notably slower in commuting zones than in their corresponding cities in most OECD countries.
Technological change holds great promise to accelerate the net zero transition, address labour shortages and generate growth in all regions. Automation and Artificial Intelligence, for example, offer huge potential, but their spatial impacts require careful management. Capital-city regions, for example, are currently leading the green transition, with 25% of workers employed in green-task related jobs compared to 17% in other regions. However, challenges are mounting across regions, as vacancy rates for green jobs are 44% higher than other occupations, underscoring the pressing need for more skilled labour in this area.