City limits: How the UK’s industrial strategy can share living standards gains
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Stephen Clarke's presentation for the Resolution Foundation event with Greg Clark MP.
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City limits: How the UK’s industrial strategy can share living standards gains
- 1. City limits: How the UK’s industrial strategy can share living standards gains Greg Clark MP, Secretary of State for Business, Enterprise and Industrial Strategy Diane Coyle, Professor of Economics at the University of Manchester DavidWilletts, Executive Chair of the Resolution Foundation Stephen Clarke, Economic and PolicyAnalyst at the Resolution Foundation #livingstandards @resfoundation Wifi: 2QAG_guest p: W3lc0m3!! 1
- 2. Build it and they will come Do high-tech sectors raise living standards? Stephen Clarke July 2017 @resfoundation/@stephenlclarke 2
- 3. There has been consensus on the need for an industrial strategy that supports key sectors 3 • At a national level “Sectors such as aerospace, automotive, the life sciences, the creative industries, digital, financial services and professional and business services” Building our Industrial Strategy Green Paper • At the regional level “Key sectors where we have a comparative advantage to be exploited and accelerated include health and life sciences, financial and professional services, creative and digital, education, sport, culture and heritage and advanced manufacturing” Greater Manchester Strategy
- 4. The hope is that supporting these sectors will reduce regional disparities and also spread prosperity within communities 4 “Our modern industrial strategy is designed to deliver a stronger economy that works for everyone – where wealth and opportunity are spread across every community” Conservative Party Manifesto “a credible industrial strategy can reach this untapped potential and deliver prosperity to every corner of our country” Labour Party Manifesto
- 5. The focus has been on ‘advanced industries’ 5 “aerospace, automotive, the life sciences, the creative industries, digital, financial services and professional and business services” We focus on: Creative industries – e.g. advertising, television, architecture Digital technology – e.g. electronics, computer games, telecoms High-tech sectors – e.g. aerospace, pharmaceuticals Tradeable finance – e.g. Investment banking, fund management
- 6. Previously we had only limited evidence of the relationship between advanced industries and living standards 6 Advanced industries are clustered in the South East
- 7. Previously we had only limited evidence of the relationship between advanced industries and living standards 7 Where pay is higher
- 8. Previously we had only limited evidence of the relationship between advanced industries and living standards 8 And employment is higher
- 9. There is clearly a correlation between advanced industries and wider growth in ‘non-tradeable’ services (bars, restaurants, hairdressers etc) but this is not evidence of causation 9 London accounted for 75 per cent of the growth in advanced industries between 2009 – 2015 Cambridge, Leeds and Aberdeen accounted for 3-4 per cent each
- 10. Result 1: Advanced industries create jobs in the wider economy 10 • Between 2009 and 2015, 234,000 high-tech, digital, creative and tradeable finance jobs were created. • On average, each additional 10 jobs in these sectors created 6 new jobs in the wider service sector economy • Advanced industries created 20 per cent of all service sector jobs over the period
- 11. Result 2:The prosperity they create is shared, particularly by those with relatively lower levels of education 11 • For each 10 additional jobs created in advanced industries, a further 4 service sector jobs are created for those with relatively low education levels • Over the period, around 60,000 additional jobs were created for this group • Annual earnings for workers with average levels of education increased by £72
- 12. Result 3: But advanced industries do little to raise earnings for the lowest-paid 12 • Earnings fell by £85 for workers with below-average levels of education • This is a result of the fact that the new jobs created, and the people that fill them are – on average – lower paid
- 13. Place matters: the impact differs by area 13 Cambridge saw a further 28 jobs created in local service sectors for every 10 jobs created in advanced industries Manchester saw a further 48 jobs created for every 10 jobs created in advanced industries Oxford created almost no locally-based service sector jobs, despite creating 5,600 jobs in advanced industries
- 14. A modern industrial strategy 14 • Consensus view that spreading high-tech sectors can narrow regional inequalities and raise living standards • Evidence that this creates jobs elsewhere in the local economy but not guaranteed – role of policy makers like Metro Mayors key • Impact on low earners’ pay less positive so industrial strategy needs to also include low-pay but high-employment sectors e.g. retail & hospitality
- 15. City limits: How the UK’s industrial strategy can share living standards gains Greg Clark MP, Secretary of State for Business, Enterprise and Industrial Strategy Diane Coyle, Professor of Economics at the University of Manchester DavidWilletts, Executive Chair of the Resolution Foundation Stephen Clarke, Economic and PolicyAnalyst at the Resolution Foundation #livingstandards @resfoundation Wifi: 2QAG_guest p: W3lc0m3!! 15
Notas do Editor
- In this presentation I’m going to provide an overview of some work that Dr. Neil Lee at the London School of Economics and I did to answer the question on the slide - Do high-tech sectors raise living standards? Neil did most of the tough analysis and is here and so please direct any praise, and more importantly, any probing critiques to him.
- Investigating the impact that high-tech or advanced industries have is important because support for them has formed one of the key pillars of national and regional industrial policy for a number of years now.
- Underpinning the support for advanced industries is the belief that they will help spread prosperity across the country, and also spread prosperity within communities, as these sectors generate jobs in the wider economy. In particular we test the second of these two assumptions.
- Now before I turn to the results of the paper its probably worth formally setting out what we mean when we refer to ‘advanced industries’. We looked at four distinct sectors: creative, digital, high-tech and tradeable finance. We tested what effect an expansion of these industries had in general and what specific effect each sector had. We did this across around 160 local economies or travel to work areas in Great Britain.
- Previously we only had tentative evidence about the relationship between advanced industries and wider living standards. This map shows the share of jobs in an area accounted for by advanced industries. The dark blue areas, such as Aberdeen in the North East of Scotland are those where a high-proportion of people work in advanced industries. You can see a big concentration in London and particularly out west from the capital in areas such as Reading, Woking. Around 20-25% of jobs in these areas are in advanced industries. By contrast in many places in Wales, the South West and even urban areas in the midlands and north there are far fewer jobs in advanced industries.
- So I’ve now overlaid a map of gross hourly pay on the previous map of advanced industries and you can see that in many places with a high concentration of advanced industries pay is high. Average pay in and around London is as high as £13-15. Although this doesn’t account for the higher cost of living in many of the higher-paying areas.
- The employment rate also tends to be higher in areas with higher concentrations of advanced industries. This map grades local economies by their employment rate. Areas in green have an employment rate above the national average, those in red have rates below average. The majority – although the big exception is London – of areas in the South East have an above-average employment rate.
- There is also a correlation between areas that have experienced strong growth in advanced industry jobs and those that have experienced growth in jobs in the wider economy. In this chart each bubble is a local economy, those in the top right have experienced growth in advanced industry jobs and jobs in the wider economy. However this does not prove causation, lots else could be at work here and we have no evidence that one is driving the other.
- In the paper however we test the relationship more formally using a statistical model. In this model we isolate the specific impact that the growth in advanced industries had on the wider economy. Our first result is that advanced industries create significant numbers of jobs in the wider economy. For each 10 advanced industry jobs created, between 6 and 12 new jobs – depending on the specific advanced industry – were created in the wider economy.
- Our second result is that the jobs in the wider economy that advanced sectors create, many go to worker with relatively lower levels of education. And there is some boost in pay for workers with average levels of education.
- However, our final result and one of the side-effects of a big expansion of jobs for those with below-average levels of education was that this lowered average pay for this group. In short lots more jobs were created, but these jobs paid less – on average – than existing jobs.
- However, the impact varied across the country. Cambridge and Manchester are two examples of place that did a good job – for a variety of reasons – of turning advanced industry jobs into jobs in the wider service sector economy. By contrast Oxford is a place where few extra jobs were created in the wider economy.
- Our research therefore provides some important evidence to contribute to the industrial strategy debate. In particular the role that local leaders can play and the need to look beyond the advanced industries covered in the paper and I look forward to hearing the thoughts of the Secretary of State and Diane.