Many large cities have enclaves of depressing poverty and some of immense wealth. But getting past the extremes, there is some evidence that in expensive cities, the difference is diminishing between what people in typically higher paying professions (such as doctors) are earning and those in normally lower paying occupations (such as retail clerks).
From a 2005 report I found by chance by Sagoon Conan Lee of the Sauder School of Business:
Average wages tend to increase with city size. Most explanations of this urban wage premium emphasize productivity spillovers. This paper proposes a consumption-side explanation….The wide consumption variety found in large cities is more important to high-skill hence high-income) workers than low-skill workers, and thus the higher wages found in large cities are due to the selection of high skill workers choosing to live there. A testable implication f my theory, distinguished from productivity-based theories, is that urban wage premiums may be negative for high-skill workers. This implication is confirmed by data on the medical profession. At the top skill level, there is substantial urban wage discount: doctors in large cities are paid 8 percent less than their peers in small cities.
And it makes sense. For a city to function well, you need everyone from chefs to dishwashers, doctors to janitors and barristas to barristers. But, in occupations requiring less education and experience, wages tend to be lower. In hip, urban areas where many people want to live, life is expensive and in such places minimum wage often is not a living wage. Therefore, to attract and retain staff, employers have to pay higher wages in these types of occupations than they do in a city.
At the other end of the shrinking spectrum, educated individuals, such as doctors, want to live in big, cosmopolitan cities with great cultural activities, world-class restaurants, and other amenities. They’d rather not live in smaller communities that lack these things. Therefore, they typically demand a premium to live and work outside of a big city (which given the lower living costs means a high standard of living). Meanwhile, many will accept a lower salary and lower standard of living to be in the amenity-rich city.
While medical specialists and burger flippers are still earning vastly different sums, both are needed and the difference in their earnings is comparatively smaller in the expensive cities.
As North America urbanizes over the next decades, this may be an interesting trend to watch.
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