Few find London's streets paved with gold as earnings in the capital become divided

The capital might look the same but under the surface its workforce has changed radically

Karl Marx once wrote that anyone who is unaware of history is enslaved by it, unable to see much beyond the present and the taken for granted. This holds in a variety of contexts, from the rise and fall of empires to the rapid pace of technological change. Many people under 30 cannot conceive of life without a mobile phone or the internet. But just 10 years ago the internet barely existed and mobiles were restricted to a small minority.

Much the same point can be made about cities. Anyone who has not visited London for a few years could be forgiven for overlooking the massive transformation which has taken place in the structure of its economy, its class composition, its earnings and its physical landscape. In many respects it still looks the same. The streets are still dirty and the tubes overcrowded, but underneath the surface something remarkable has happened, as it has in other cities such as New York and Paris.

That something is the shift from an "industrial" to a "post-industrial" economy: from an economy in which manufacturing industry played a major part to one where the leading sectors are finance and business services and, more recently, the creative or cultural economy including film, TV, video, publishing and the digital economy.

A third of London's workforce 40 years ago was employed in manufacturing and about 10 per cent in finance and business services. Today, the proportions are reversed. The number of people working in manufacturing has fallen from almost 1.5 million in 1961 to 250,000 in 2001: and many of them work in the head offices of major manufacturing companies rather than in directly making things (figure 1).

London has lost almost all its major manufacturing firms. Ford at Dagenham is now reduced to an engine plant rather than car producer. Most breweries have moved out, along with much of the food production and printing. The belt of Victorian and inter-war light industrial plants around central London have almost all closed. It is symptomatic of the post-industrial shift that many of these sites are now indemand for conversion into luxury loft apartments. Docklands has been transformed into an impressive office centre for financial and business services and upmarket housing.

This transformation in the industrial structure of London has been reflected in its class structure. As manufacturing has declined, so have the number and proportion of skilled and semi-skilled manual workers. Conversely, as the business service sector has grown so have the number of professional, technical and managerial jobs. Most of today's jobs are office jobs and London is now far more middle-class than it was 30 or 40 years ago (Figure 2).

There is a fierce academic debate about this, however. Although the official statistical data all show a growing professional and managerial group and a shrinking working class, it is often argued that the occupational structure of London and similar cities is characterised by a shift to bi-polar occupational structure, with growth both at the top and at the bottom end in low skilled and low paid service jobs, many of which do not show up in the official figures. There is no doubt that there has been growth in some low-skilled jobs (restaurants, bars, security, office cleaning), but what is overlooked is the massive decline in other low skill sectors. The numbers of bus conductors, rail guards and porters have all shrunk dramatically over the last 40 years.

The transformation in the occupational structure of London (and other major cities) has been paralleled by changes in its earnings structure. The past 25 years have seen a major growth in high paid jobs, particularly in finance. As a result, the distribution of earnings has shifted sharply upwards. According to the New Earnings Survey, in 2002 average gross annual earnings for full time workers on adult rates in the UK as a whole was £24,500. In Greater London it was £34,760 and in the City of London it was a remarkable £59,000 (figure 3).

Averages are just that, however, and in London in 2002 10 per cent of full-time workers earned less than £260 a week whereas 10 per cent earned more than £1,070 a week. In the City, the top 10 per cent earned more than £1,670 per week, or almost £87,000 a year. One consequence of the gains at the top end has been a sharp increase in inequality. The ratio of the top 10 per cent of earnings to the bottom 10 per cent has risen sharply since the 1970s. The rich are now much richer and London is a much more unequal city than 25 years ago. Dick Whittington was part right: the streets of London are paved with gold, but only for some.

Not surprisingly, the growth of the well paid professional and managerial middle class has had an impact on the housing market. The size of the owner occupied sector has grown rapidly in recent decades, and prices have risen dramatically. Land Registry data show average prices in London in the second quarter of 2003 were £246,000 but they varied between £642,000 in Kensington to £142,000 in Barking.

Perhaps the biggest impact, however, has been on the growth of gentrification. Forty years ago most of inner London was white working class. Today, middle class home ownership has pushed steadily outwards into Islington, Hackney and the East End. What remains of the traditional working class has either moved out to the suburbs or become more concentrated in the council and social housing sector where unemployment and economic inactivity is high. The London portrayed in the film The Long Good Friday in 1981 has been replaced by the London of Four Weddings and a Funeral and Sliding Doors.

Chris Hamnett is Professor of Geography at King's College London and author of 'Unequal City: London in the Global Arena', Routledge, 2003