October 15, 2014

From the UK, through Europe to South Africa…with Jobs on my mind

I have not posted on my blog since March following a flurry of articles in the first few months of the year on growth,poverty,cities,youth unemployment,skills and more.Thanks to the 2000 people who have read these(or at least visited them!). I hope you found them interesting and useful. They certainly,in my view, stand the test of time and are worth reading if you haven’t already,if you work in these fields.

Why no posts then for 6 months? I honestly have just been too busy with work;enjoying our wonderful summer (surely an oxymoron); and going to interesting places like Girona,Vienna,Stockholm,Paris,Brussels and various places in Iceland.

So,this post is just a quick update on the main things that I am doing work wise,which may be of interest.

Cities,Growth and Poverty

The exciting work with the Joseph Rowntree Foundation here in the UK on ‘Growth,Cities and Poverty’ continues. This 3 year programme is producing a great deal of material on evidence and policy,whilst engaging in action research with the Leeds City Region LEP and Leeds City Council. As Programme Advisor, I am working with Josh Stott, Head of Place at the JRF,to design and commission a wide range of projects and to help report on, and disseminate, their findings.

Keep an eye out for our new short summary of what we have done,what we are doing now and what we plan to do which will come out later this month. This attractively produced booklet provides a great insight into the issues and agenda that are so crucial to the future success of cities and to ensuring that ‘the many not the few’ benefit from economic recovery.For more information,go to: http://www.jrf.org.uk/topic/cities.

Cities in Europe

The Urbact work (see http://www.urbact.eu) focuses on youth employment: How are we to grow job opportunities for young people in our cities?

We have a core group of people from across the EU looking at this under the leadership of Alison Partridge (www.aurora-ltd.eu), reviewing the lessons from the Urbact Programme, evidence from the literature and elsewhere. We have held an evidence hearing in Paris at the OECD last month. We have another in Brussels next week listening to the experience of cities themselves as well as young people’s organisations, employers and employment services. We are also writing up two city case studies of Leeds City Region and Thessaloniki.The final report  based on all this work and more,will not be available until the launch event in Riga in May,but in the meanwhile, you can read a 4 page article about it all in the Urbact Tribune: urbact.eu/fileadmin/general_library/Tribune

South Africa

The South African Government take the Skills Agenda very seriously. I am privileged to be working with Glen Fisher ( http://www.glenfisher.ca) over the next year or so, on the EU-SA Policy Dialogue with the Department of Higher Education and Training , on how best to develop a credible mechanism for effective skills planning in South Africa. The focus is very much on how intelligence about the supply and demand for skills can be developed and utilised to get a better balance between the two and to ensure that the country has the skills it needs for it’s high ambitions for it’s people.

So, I am working here on these three great projects, on the themes that have engaged me all my working life: local economies, labour markets and skills. All three projects intersect on the central issue, in the end, being about JOBS: Do we have the skills we need to fill them? How are they changing? Are they decent jobs? Who has access to these opportunities? How can economies work in better ways to provide jobs,good jobs, for those that need them and how can people get the skills they need to get the jobs that are available?

In the end?….well, maybe the ‘end’ is actually somewhere else, if we really want to solve these problems.What perspective does Government have on these issues? What kind of society do we want to live in and are we prepared to seek to create it? Developing effective,evidence based policies and delivery systems is one thing, hard enough in itself, but it is quite another to ensure that those in authority listen,act and commit themselves to the creation of ‘prosperity for all’.

March 30, 2014

City Growth: The Role of Skills

Earlier this month the independent City Growth Commission held an expert seminar at the RSA to consider the role of skills in stimulating economic growth in our cities. Skills are one of the key themes of their inquiry into how cities can achieve their growth potential and foster higher living standards. It will publish it’s findings in the Autumn but may well launch it’s skills report in the summer.

I was invited to be one of two speakers at the seminar(with Hugh Stickland the chief economist at Citizens Advice) and this post is a summary of my presentation.

Skills development is important to BOTH components of economic growth: employment and productivity. It can increase employability, mobility,access to opportunities and aid jobs growth itself,including through more effectively meeting employers’ skills needs and increasing inward investment. But it can also improve the prospects of business success,and thus competitiveness,through raising productivity levels,via it’s effects,for example, on adaptability,innovation,commitment and the ability to utilise technology effectively.Raising skill levels can increase economic growth and poor skills can constrain it.

The empirical evidence on the ‘value’ of skills is compelling. Around a fifth of economic growth is associated with improvements of workforce skills; ‘low’ training companies are more than twice as likely to go out of business than ‘high’ training companies; and the earnings premia associated with achieving ,say,level 5 qualifications,compared to someone without,is nearly 80%.

Yet,skill levels in the UK are poor by international standards-ranking 20th on ‘low’ level skills and 21st on ‘intermediate’ skills. We do better on higher level skills,coming 11th in the league table. And skill levels vary enormously across the UK,from two thirds of people having high skill levels to less than a fifth and from 1 in 6 having no qualifications at all to just 1 in 25. Large parts of eastern England,the South West and North East have relatively low skill levels and many towns and cities in the UK perform poorly. Large parts of Lancashire,Manchester and Merseyside,the West Midlands and South Yorkshire have a disproportionately low proportion of people with high level skills and a disproportionately high share of people with low level skills. And if we look at the 8 ‘core’ cities in England i.e. the largest 8 outside London,only Bristol ranks in the top third of the 64 British cities (as defined by the Centre for Cities) on skill levels. And Liverpool and Birmingham are well into the bottom third. In short,many are low skill cities in a relatively low skill country. This is not a great place to be in a global economy where increasingly skills are a key determinant of economic success-for people,for companies and for communities- and where (decent) jobs growth is largely ‘skill biased’.

So,what is to be done? What can cities do in order to ‘skill up’? First,the obvious and most common thing to do is to raise skill levels. Increase the proportion of people participating in education and training and acquiring qualifications at every skill level: those currently at level 2 to level 3 and so on.More staying on at school,more entering college,more going to university,more people training in the workplace. Improve the ‘offer’,enhance quality. Make post compulsory provision ever more attractive. Make the ‘economic’ case for skills. Create clever incentives,financial, and otherwise to make skills acquisition more desirable and interesting. Market education and training better.

But that is the easy bit! We must not skill people up…only to let them down.So,t is essential that the skills that young people and adults acquire are relevant to labour market needs.They need to be the skills that employers require. They need to ‘match’ the jobs that are available and are being created. In other words the education and training agenda needs to be articulated with the labour market agenda: skills with jobs. If we do not,then it is not only people who will be let down,but employers too,who will not be able to acquire the skilled workers they need to be successful. In short, a failure by cities to address the mismatches in the local labour market,means the co-existence of skills shortages and skills gaps with unemployment and underemployment. It will also mean the out migration or out commuting of skilled labour together with in migration and inward commuting of those who do have the ‘right’ skills. The consequences of this sort of development are serious : labour market exclusion,congestion,inequality. Perhaps worst of all, a broken promise: that ‘doing well’ at school,college or university is valuable and a ‘ticket’ to a job,a better job,a better life.

So,how better to ‘connect’ skills and jobs? Cities should have explicit priorities for skills development linked to emerging opportunities. They should invest in,and encourage, the development of ‘economically valuable’ skills and those in strong demand in the labour market . Transferable skills such as oral and written communication skills and the ability to work in teams will be important ,alongside technical,professional job specific skills. High quality,accessible to all, Information,Advice and Guidance services should be available and should use the best labour market intelligence available. Providers (schools,colleges ,universities and private training providers) should work closely with employers,so that each improves their understanding of,and trust in,the other.’ Bridging’ the worlds of work and education is essential. Provision can be encouraged to be more responsive to labour market need,perhaps through a greater focus on the transparency of outcomes e.g the proportion of ‘graduates’ obtaining appropriate employment.

Is that enough to secure success through skills? I fear not. It is a necessary but not sufficient condition. Why? Especially in areas where skills are already particularly low and/or where economic growth is weak (i.e. most cities outside the South East of England and several within it) the actual ‘demand’ for more skilled people may be limited. This could be due to a weak local economy,an economic structure oriented to slow growing sectors and jobs, to a low pay economy/labour market. In short,in many local economies we need more economic ‘pull’ on the demand side as well as  skills push on the supply side. We need to stimulate demand,we need more skilled jobs for the skilled people to do.This means taking local economic policy seriously: improving the economic structure,e.g. through inward investment, and prioritising the needs of stronger sectors and companies who have the scope for expansion and growth,perhaps through export markets or innovation. Business strategy matters as companies work to move up the value chain and produce or sell higher quality products/services. In all of this the quality of local management and leadership is crucial,in itself providing scope for the further development of management capability. We also need management that is keen to fully utilise ,and benefit from, the skills that they have already in their workforce.Here,human resource management practices can ‘make the most’ of peoples’ skills,gaining maximum productive advantage from them. In too many organisations the skills that people have are underused.

Taken together these three sets of related actions can create a ‘virtuous circle’,building both skills supply and skills demand and,as a consequence, sustainable economic growth through raised levels of employment and productivity,creating the potential for higher living standards. For this to happen however,there is one final,vital piece of the jigsaw to complete. This whole process requires good governance i.e. the effective co-ordination and integration of the policies,partners and actions we have outlined; the creation of a vision ,SMART objectives; and the regular reporting of progress to ensure accountability. Leadership is essential.

This is a challenging agenda but one that is capable of securing substantial economic benefits for cities and their citizens. I hope that more cities will rise to the challenge and make skills development the cornerstone of their economic strategies.

February 28, 2014

Smart Cities? Not For Me!

When I first heard people talk about‘ smart’ cities,I thought they were talking about strategy. SMART,as in having objectives that were specific,measurable,actionable,realistic and time bound.That’s the trouble with loose talk or when people come together from different backgrounds. Now I know different.Whenever policy folk are gathered together,in conferences and meetings, there is much talk of ‘smart’ cities. When you see policy documents from Governments,the European Commission and from cities themselves,there it is again : ‘smart’ cities. You will see it in the Local Enterprise Partnership Strategic Economic Plans and in the European Structural and Investment Funds documents for 2014-20. You will hear talk about it from Ministers,officials and advisors. If you go to the right academic conferences you will hear it there too. And beyond the City agenda,you will also hear about it: smart specialisation (especially in european discussions) ,smart government, smart growth……..and nothing to do with SMART objectives!

Smart Cities:you are not really smart without it. It is the latest economic development fad,the current fashion,the ‘go to’ for any forward thinking city or policy maker. Who could possibly not want to be a smart city? I mean,you wouldn’t want to be a dumb city,a stupid city, now would you? So what is a ‘smart’ city and does it matter? The problem is, that the agenda is misunderstood,misused and mistaken. It means many different things and is often just mixed up.The term is ‘fuzzy’. In some cases it is just rhetoric,a discourse designed for marketing a city.Worse,it can be just empty hype,a phrase devoid of meaning or substance.

It’s most specific meaning and use relates to Information and Communication Technologies (ICT) and their role in economic development,building an infrastructure to enable greater connectivity between businesses or citizens or government,or all three.This can sometimes refer primarily to developing broadband,wireless networks and the mobile technology to deepen connections within the city or between it and the rest of the world. Or it can refer to the so called ‘Big Data’ agenda,the collection and analysis of huge data sets so as to develop local intelligence and information management. Now,virtual connectivity and big data are both potentially valuable elements of a local economy,but are by no means capable of defining or charicterising the economic success of cities. It is not surprising that the big technology and consultancy companies are often at the forefront of this agenda. Sometimes this ICT led agenda is not referred to as smart but rather ‘digital’ or ‘intelligent’ cities. This would be a more accurate and literal descriptor than ‘smart’ in my view.

Others use the term smart cities when referring to a wider conception of technology than just ICT: where technical change is seen as the key driver of success.This has more in common with Innovation based approaches which focus on all technologies and their development,adoption,use and diffusion within and between businesses. Smart cities can also refer to connectivity more generally and so consider the role of transport as well as ICT while  others refer to the broader infrastructure of cities( like electricity,water and waste). Others widen the meaning in different ways by,for example,incorporating  the development of social capital (improving trust and relationships) which may seem a long way from ICT,except that the commonality is around building connectivity and this can enable greater engagement, participation and collaboration in the locality.

Another,quite different, use of the smart cities motif,is to refer to cities that are smart in respect of the environment-cities that focus on carbon reduction and energy consumption or explicit management of local natural resources. For example,the European Initiative on Smart Cities(EISC) focuses on climate change and is about building a more low carbon future and reducing greenhouse gas emissions whilst improving the quality of life.

One might have thought (as I do) that one use of ‘smart’ to describe a city or it’s economy could be around it’s people: the skills,qualifications,competences,enterprise,knowledge,know how,expertise and experience of it’s citizens i.e. how ‘smart’ they are. Unfortunately this is one rather crucial consideration which does not seem to appear at all in discussions of so called smart cities.

A further use of the smart cities terminology is much more generic ‘European Smart Cities’is a benchmarking and ranking of the performance of 70 medium sized cities,using 6 charicteristics ie a smart economy,mobility,environment,people,living and governance. It takes the form of some 31 factors and 74 indicators which measure performance across the 6 ‘smart’ charicteristics. This comes close to using ‘smart’ as a term for the measurement of (successful) cities.

So,what is a smart city then? What are they trying to achieve? What policy tools are driving the economy or success more generally? It seems to me that there is little by way of a common agenda,though there is often a technological focus of various kinds. It is a skewed and particular notion for a city to adopt,unless it is but one element of a strategy and one dimension of the city. It has nothing,in most cases,to say about all the other dimensions of a local economy or economic development strategy,in particular those that can drive demand or competitiveness or people development or greater cohesion.In any case,it is rarely clear what we are talking about in terms of content,objectives or tools.At the very least,users of the term need to be much more clear and specific when articulating their version of their ‘smart’ city.

In any case,the idea of defining a city in this way,as ‘smart’ should I guess be counterposed to alternative conceptions,some of which are less fashionable now than they were, which may be superior in various ways e.g. The Green City or The Creative City. Maybe better ones for the future could include e.g. The Quality City;The Good City; or,my favourite, The Happy City. The pursuit of happiness seems to me a superior ideal to the pursuit of,say, a technologically connected one. But the pragmatist in me will  settle for now on an ‘economically successful’ city,one which is able to generate sustainable prosperity for all it’s citizens. And,hey 1/we know what we are talking about here 2/ we can measure it 3/it is meaningful 3/it matters and 4/it does not depend on a fuzzy,fadish and partial conception of a few things that might affect some aspects of economic development.

Smart City? No Thanks!

February 17, 2014

Productivity: It’s Almost Everything!

Productivity is probably the most important economic issue in the UK. At least I think it is.

But it doesn’t draw the same interest,coverage (or understanding?) as many others like unemployment or the public deficit/borrowing. It seems a bit arcane, somewhat technical,boring even. It is rarely on politicians’ lips,almost never in the media spotlight and few business people discuss it frequently (though it exercises them privately). The person in the street barely knows what it means,is interested in it,or cares about it.

Paul Krugman once said that ‘Productivity isn’t everything….but in the long run,it is almost everything’. The fact is that productivity,how well we utilise the resources we have available to produce the goods and services we require,is the prime determinant of our level of output,our material living standards.It is also a key measure of  competitiveness (national or local) and overall economic performance. The growth of productivity over time is crucial to securing economic growth and the growth of real incomes. Indeed,our prosperity depends,deceptively simply,on just 2  things: how many people are in work and how productive they are when in work.

This post summarises the UK’s recent productivity performance and it’s implications. By the end it will be clear that tackling our poor productivity performance is an urgent and significant priority for Government and for us all.

The key measure of productivity is output per worker (or,even better,output per hour). So what are productivity levels like in the UK compared to other major countries? In short, they are woeful! The most recent ONS data (published in Autumn 2013) show that in the last quarter of 2012 UK output per worker was 19% lower than in the rest of the G7 countries ( i.e. France,Germany,Italy,Japan,Canada and the USA). Output per hour worked was 16% lower: more than 20% lower than in Germany and 30% less than in the USA. These gaps are very considerable,especially when you realise that each 1% point gap amounts to around £12 billion (£12,000,000,000) lower GDP.These productivity gaps have been (generally) growing over time: this current gap is the largest since 1994. If we take a wider set of comparisons,UK productivity levels currently rank around 11th in the  3o countries of the OECD,below for example the Netherlands and Norway but above Portugal and Spain.It is then no great surprise that the major international indices of competitiveness,the World Economic Forum Global Competitiveness Index and the IMD’s World Competitiveness,place the UK respectively 10th and 18th in the world.

What of recent productivity growth?Productivity,as measured by output per hour,is still (in 2012) 2% points lower than it’s pre recession 2007 level. Indeed,a recent paper from BIS suggests output per hour is still in 2013 4.4% below it’s pre recession peak.And,according to ONS,it is 15% points below it’s ‘counterfactual’ level. In other words,it is 15% below what it would have been if productivity had grown through the recession at it’s pre recession rate. You would expect productivity to fall in a recession,due to lower demand and consequent underuse of resources,including labour,but the fall and it’s failure to recover so far,is substantial and worrying.This counterfactual figure for the rest of the G7 was just 5%. This is often referred to as the ‘productivity puzzle’ i.e. why hasn’t productivity growth returned (allbeit to it’s previously relatively low level)? After previous recessions it has tended to return,implying it’s fall was due to weak demand rather than a structural problem. Suggested causes of the puzzle include the more flexible labour market conditions (than in the past and in comparison to other countries,when the ‘hit’ was greater on employment);the changing composition of the economy/labour market;and declining Trade Union density(and hence influence),all leading to a big hit on wages.Solutions range from further market deregulation to greater state regulation,from tax cuts to industrialnstrategy.

So,the UK has 2 related big productivity problems 1/ It is too low relative to major competitors 2/It has recently fallen especially sharply and shows little sign of improving. This means that not only does the UK have a long term competiveness problem but that current economic growth is being driven by it’s other determinant,jobs growth.And low/no productivity growth effectively puts a ceiling on growth as the labour market tightens,wage pressure increases , labour shortages appear and inflation pressure mounts. This is bad news indeed,as growth is crucial to deficit reduction(without even deeper public spending cuts and tax rises),long term real earnings growth and future enhanced prosperity. In my view,there is a need to dig deeper to understand our productivity problems and solutions. There are very substantial productivity variations across sectors and regions and between such sectors and regions and their international comparators. As so often in the UK,it is the variability in performance,between for example London and the cities of the ‘North’ and between financial services and manufacturing,that underpin explanations of national economic performance.

Finally,what are the long term drivers of productivity growth? What is my headline assessment of their importance?What do we need to focus on,if we are to improve UK productivity…..in addition to taking demand,locality and sector seriously as I mentioned above? This is my agenda for change:

  • Investment in machinery,equipment and physical capital. UK performance here is weak but key largely only to manufacturing performance and where ICT is pervasive
  • Innovation in products,processes and management,exploiting new ideas. Absolutely crucial,where the UK is strong on invention rather than application. Moving up the value chain,business strategy and management quality are key. The UK has a variable performance here
  • Structure,Competitiveness and Enterprise. Moving into higher productivity sectors and out of low productivity sectors,especially where competition is price determined.A focus on quality,distinctiveness and an international orientation are vital.The question here is wether to achieve this through unleashing the market,creating ‘waves of creative destruction’ or through a thorough industrial strategy or through some clever combination of the two
  • Skills. The quality of the labour force,it’s adaptability and it’s ‘fit’ to evolving labour market requirements is crucial. The UK’s skills deficiencies are extensive ,widely known and unresolved.I will be writing about this issue in due course,suffice to say here that this is primarily a mismatch problem,where demand is as culpable as supply

If you like pnemonics,it is :IISS

February 12, 2014

Britain’s Cities: Can Growth Beat Poverty?

Growth and Poverty: Different worlds,different agendas and different policies and institutions. Those concerned about the former rarely examine it’s impact on the latter and those concerned with the latter tend to ignore the former. But can growth reduce poverty? Can reducing poverty even improve our growth prospects? How can we better connect growth and poverty reduction? What role can cities play in securing it?

Over the last 20 years the UK economy has grown by over 60% i.e. it is more than half as big again than it was in 1992. On average (see my blog post on using numbers!) we are 60% ‘better off’ than we were. But the Poverty rate (the proportion of households with an income of less than 60% of the median-yes,I know the definition is complicated!) has only fallen by around 15%. And worklessness has only fallen by less than 10%.In fact,there are now around 13 million people living in Poverty in the UK i.e. 21% of the population. So,Poverty is a BIG problem and it seems that economic growth,while having some effect on poverty levels over time, by no means secures substantial change. A rising tide does not appear to lift all boats. Growth does trickle down to many of those in poverty,but that is what it so often is,a trickle. And poverty acts as a drag on growth,with a substantial welfare bill needed just to manage it.

Poverty is disproportionately concentrated in cities.And cities are important places,where the majority of the population (poor and rich and those in between) actually live,and if they are fortunate enough,to work, and they are where over half our economic growth comes from.So,what can cities do to help ensure that growth reduces poverty? The Joseph Rowntree Foundation has just launched (in Leeds last week) a 3 year programme of action research on ‘Cities,Growth and Poverty’ to try to answer this question.  I am pleased to be working with them as their Programme Advisor. The  initial evidence review,accessed through the link above and prepared by the Work Foundation, makes interesting reading.

First of all,there are large and growing differences between cities in their growth performance.So much so that,for example, GVA per worker is nearly 80% higher in Reading than in Blackburn and the employment rate in Birmingham is 15% points below that in Gloucester. There are also differences in poverty rates,for example,child poverty rates vary from around 10% in Cambridge to well over 20% in Liverpool. And over the last decade in the cities,growth did tend to reduce poverty levels somewhat but the relationship between growth and poverty reduction is weak and growth also tends to boost higher more than lower level incomes. So, how can we strengthen this relation? How can we share the benefits of growth more evenly?How can we help growth bring prosperity to all? How can we experience more ‘inclusive’ growth?

There is a much stronger relationship between jobs growth and poverty reduction in the UK’s cities. It is job creation that is the critical factor in linking growth and poverty.Cities that experienced faster jobs growth tended to see the largest reductions in poverty.They also see the largest increases in employment for lower skill workers. Moreover,the type or structure of jobs growth is important too e.g. different sectors have different impacts on poverty.

But,jobs growth in itself is probably insufficient. It is not enough to have a job in order to escape from poverty. For the first time,there are now more people living in households in poverty where someone is in work (6.7 million) than where there is no one in work (6.3 million). The problem here is low paid work. There are 4.6 million people (around 15% of the workforce) in jobs that pay less than the ‘living wage’ of  £7.45 per hour. And the pay of the bottom 10% of earners is at the same ‘real’ level as in 2001. So,we not only need more jobs but’ better’ jobs.

Herein lies a problem. Whilst the years since the 1980’s have seen the growth of high paid AND low paid jobs,’middle’ jobs have been disappearing. The labour market has been ‘polarising’. And this means that progression in the labour market from low paid jobs  into ‘better’ jobs is made more difficult as opportunities for moving into better paid jobs are reduced.Indeed,the issue  is about more than pay,it is about ‘job quality’ more broadly as the labour market creates more jobs that are ‘precarious’-part time jobs,temporary jobs,zero hour contracts and at the same time there are increasing numbers who are ‘underemployed’,either part time workers who want full time jobs or highly qualified workers who are in jobs that don’t utilise their skills fully.

So,more jobs and better jobs are important keys to tackling poverty,both ‘in work’ and ‘out of work’ poverty. But they are insufficient. It is vital to also connect these opportunities to those who are experiencing poverty,so that the ‘more and better’ jobs are available to ,and taken up by,those in poverty. Too often,the poor are effectively locked out of and excluded from opportunity by their skills,their networks,their location and much besides. These barriers are crucial to knock down.The ‘Cities,Growth and Poverty’ programme have just commissioned Professor Anne Green of the Institute for Employment Research at Warwick University,working with colleagues at Coventry University to work on this issue over the next 12 months.

The Joseph Rowntree Foundation work will do more than research these issues,examine and share potential actions. It will also work to practically pursue what can be done. JRF has teamed up in a partnership with Leeds City Council and Leeds City Region Local Enterprise Partnership (details at the above link) to work together to ‘identify what can be done and by whom to create more and better jobs that help lift people and places out of poverty’. Leeds City Region has an estimated 65,000 households living in poverty and 130,000 people unemployed as well as 68,000 people earning less than £7.65 an hour. But there are enormous opportunities too,as new jobs and growth are generated in the years ahead,in one of the most economically successful cities/city regions in the UK. We want to ensure that this prosperity is shared.

Indeed,poverty reduction has considerable benefits over and above the reduction in poverty itself. It can lead to substantial fiscal gains, in terms of reduced benefits and increased taxes,thus benefiting the exchequer and public borrowing. And it can help drive growth itself,as more people enter work and undertake more productive jobs,thus raising GVA and productivity. Not to mention the reduced pressure on public services as health improves and crime falls. We have commissioned the Centre for Economic and Social Inclusion to estimate the value of such gains for Leeds and the Leeds City Region.

Indeed,poverty reduction needs to be seen as an important element of a city’s economic strategy. It is not a separate social agenda. Growth and poverty reduction can not only be reconciled but actually integrated into an agenda of shared prosperity,which goes beyond the failed silo approaches of the past. Hitherto,policy and practice have focused overly on welfare reform,trying to use the tax/benefits system and public services to ‘redistribute’ the proceeds from growth,’correct’ market failures and thus reduce poverty . The ‘Growth and Poverty’ approach instead favours ‘predistribution’,in order to secure a more equal distribution of the benefits from growth in the first place and,in so doing,reduce the welfare bill and encourage further growth in the process.Perhaps we can call this ‘good growth’? It is a win,win,win agenda. Who else will now take up the challenge and opportunity?

February 4, 2014

The UK’s Cities: How well are they doing? What is to be Done?

Well,what do we know?

  • London leads the UKs economic recovery
  • In the last 3 years London has created 10 times as many private sector jobs as ANY other city
  • In the last 3 years nearly 80% of private sector jobs growth has occurred in London
  • Every city outside the South East is loosing young people to London as it sucks in talent to fuel it’s growth

The influential and valuable annual Centre for Cities Outlook for 2014 was published last month. It provides a snapshot of our largest 64 city economies and an insight into how well they are doing.Much of the reportage has focused on the findings and agenda as indicated above: London is overwhelmingly important and by far our best performing city.Most of our other cities are ‘under performing’ and punching below their weight. This is,mostly, true and important. But it is far from the whole story. It overplays the superiority of the London performance and underplays the extraordinary variation in cities’ economic performance,especially on jobs, across the UK. So,this article provides,using Centre for Cities data, a complimentary narrative on our cities’ economic performance.

First,London.Some of the hype about London’s performance is simply down to it’s sheer size rather than it’s performance.Using absolute numbers when comparing any change,including in cities,can be misleading. For example,whilst London did indeed account for the equivalent of nearly 80% of net absolute private sector  jobs growth between 2010-2012, the rate of private sector jobs growth was actually faster in e.g Edinburgh,Brighton and ,wait for it, Liverpool! Jobs grew by 5.7% in London,but by similar rates in the latter 2 cases and by 11% in Edinburgh. In short,London did NOT have the fastest jobs growth,it actually came 6th. Edinburgh was in fact the fastest growing city in terms of private sector job creation.

And other indicators of performance also caste London in a somewhat less favourable light. It’s employment rate,at just 70.6% puts it outside the top third of cities (ranked 27 out of 64); a range of unemployment measures all place it outside the top 20; and it also performs poorly on lower skill levels,being ranked 18th for the proportion of adults without qualifications.

Second,there is an extraordinary variation across the UK in terms of city performance: it is NOT just a question of London versus the rest. On the issue of private sector job creation,many cities experienced growth,including those mentioned above,but many others continued to experience a serious loss of private sector jobs: e.g.Hull,Southampton,Blackpool,Sheffield and Bristol. They all lost thousands of jobs.The ‘range of change’ varied from a gain of 11% to a loss of nearly 7%,over just 3 years.

Cities’ employment rates vary from 78% (in Reading, Gloucester and Warrington) to less than 65% in 10 cities (including Glasgow,Coventry,Birmingham and Liverpool).

On skills,the proportion of the workforce with high level qualifications varies from over 60% in Cambridge and Oxford to less than a quarter,in e.g. Liverpool,Soke,Hull and Sunderland. And the proportion of those without any formal qualifications,varies from a high of nearly 1 in 7 in Bradford,Birmingham,Hull and Belfast to less than 1 in 10 in Edinburgh,York and Southampton.

Not surprisely, average earnings vary considerably too,with them being over £500 per week in the highest 10 cities to being below £425 per week in the lowest 10 cities. Average earnings are 60% higher in Reading than in Hull.

There are other important variations too: in productivity,growth and business formation,to name but three. For example GVA per worker varies from a high of more than £65,000 per worker in London and £64,500 in Reading down to a low of £36,000 in Blackburn.

So,what is to be done if we are to reduce the variation,the disparity in economic performance? What can be done to improve economic performance in the relatively weak cities and,at the same time, to sustain the performance of the relatively strong cities? There is much activity on this agenda at the moment,at least in England,with the preparation by LEPs of their strategic economic plans for Government in pursuit of the resources from the Single Growth Fund.We will soon see their plans.

A recent report,co authored by the present writer and Alison Partridge, for the European Urbact  programme, also addresses this issue from the perspective of Jobs. A free hard copy is available from me while stocks last: you can request one by emailing me at profmikec@aol.com.It is also available to download from the Urbact website: urbact.eu

January 27, 2014

The Numbers Game: Getting It Right and Wrong!

Numbers are everywhere,especially about the economy.

Inflation,unemployment,migration,pay,debt,poverty,taxes….the list goes on. We see the numbers all the time,we digest them,we use them,we quote them. They help us make sense of the world around us. They can surprise us,shock us,divide us,bore us. They are extraordinarily important. They influence decisions,policies,practices,public attitudes and beliefs. They appear daily in the media,often as headlines in newspapers. Politicians quote numbers all the time,on almost any issue.

Most of the time we accept them at face value,as facts,even as truths. This is especially true of non specialists,of ‘ordinary’ citizens. But numbers are more complicated than often realised and we need to be careful in generating them and, in particular, in using them. To do so we need to understand them better. The UK has a numeracy problem by international standards and ,more intuitively, you might feel, as I do, that many people are uncomfortable around data,figures and statistics. And,frankly, too many people ‘get it wrong’ when they play the numbers game!

Michael Blastland and Andrew Dilnot provided a great service to the nation by creating and presenting the wonderful ‘More or Less’ series of programmes on Radio 4,a show now hosted by Tim Harford. This short article cannot hope to cover all that ground. Instead it takes a different approach, one that has something in common with that of Lynne Truss, focusing on just 3 often used very simple (?!) terms,illustrating them using economic data and drawing attention to the care that needs to be taken when using them. They are: Percentages(%) ; Stocks and Flows; and Averages. Of course,what I say here is well known to statisticians,economists and many others, but not to a surprisingly large number of ‘numbers’ producers and users! Stick with me,this is more interesting and important than it may first seem. And reading this might just help you or some of those around you ,to avoid some all too common,simple,errors in understanding vital economic numbers. So let’s deal with each of these 3 in turn:

Percentages

‘Interest rates set to rise by 0.5%’

‘Unemployment falls by 1% to a new low of 7%’

‘Inflation down by 1% from a 3% high’

Really? None of these statements are actually correct, irrespective of the accuracy of the underlying data. In all 3 cases there is confusion between a ‘percentage change’ and a’ percentage point’ change. The first of these,the percentage change, compares the old/previous data with the new/current data and expresses the latter as a percentage of the former. The second of these,the percentage point change,is the actual change and is NOT expressed in terms of the old/previous data.

So, in the interest rate example, the 0.5 is the actual percentage point rise in the interest rate,say from 2.0 to 2.5. The percentage increase is actually 25% i.e.(.5/2.0 x100)! The statement therefore should say: interest rates set to rise by 0.5% point or,legitimately,interest rates set to rise by 25%. Honestly.

In the unemployment example,the 1% fall is actually the percentage point fall(and that’s what it should have said) in the rate (itself a %) of unemployment. The percentage fall is actually 12.5% (1/8 x100). The statement should therefore say:unemployment falls by 1% point or,legitimately, by 12.5%.

On inflation,the fall of 1% is a percentage point fall in the inflation rate/rate of increase in prices. The percentage fall is actually 33% (1/3 x100). The statement should thus say: inflation falls by 1% point,or legitimately,by 33%.

Similar examples could be taken from other important domains eg Growth data. The point is,to be careful when expressing oneself and interpreting what others are writing or saying,especially when expressing a change based on an existing percentage figure.Much economic reportage is about trends and comparing this year with last year or this Government’s record with the previous one,and so on. Such comparisons and assessment of trends in data over time always involve stating the ‘change’ that has taken place (negative or positive).

Stocks and Flows

It is important to distinguish clearly between stocks and flows. They are often confused ,conflated or fail to be distinguished. The latter is measured over a given period of time, for example a month or a year, and is indicative of the rate,speed or pace of change. Such flows may be of two kinds,inflow and outflow,with the balance between the two referred to as the ‘net’ flow and the sum of the two being often referred to as the ‘gross’ flow . The net flow will add too or take away from the existing stock,the accumulation of the net flows over time. It is measured at a specific point in time. The analogy of a bath is a good one. Water ‘flows’ ‘in’ through the taps and ‘out’ through the drain,with the level (‘stock’),and changes in the level/stock, being determined by the relative scale of both the flows in and out.

Such distinctions are crucial. For example between the debt (stock) and the deficit (flow) ;between wealth (stock) and income (flow). We take 2 important examples: migration and unemployment.

The net flow of migrants into the UK over recent years amounts to around 190,000 per annum,being the balance between an inflow of around 590,000 and an outflow of 400,000. Net migration is thus around 190,000 and gross in migration 590,000. It is essential to distinguish between the two. The outcome of these flows is to augment the existing stock of migrants (defining these as foreign born) of some 7.7 million,or 11.4% of the UK population,which itself arises from the accumulation of net migration flows over previous time. The Government’s migration target is to reduce ‘net migration’ to the tens of thousands. This will of course not reduce the stock. And could in any case be achieved as much through increasing the outflow (emigration) as reducing the inflow (immigration).

Unemployment in 2012 stood at around 2.6 million. This was the ‘stock’ of unemployed people. When it falls,or increases, it is often referred to as ‘unemployment fell by 70,000’ or,less accurately, as ‘70,000 left the dole queues’.  Conversely if unemployment increased by 70,000, the impression is often given, or taken, that 70,000 more people have become unemployed. This is highly misleading. Indeed,it is not true.. In the first quarter of 2012,for example,unemployment actually did fall  by around 70,000- but this does not mean that 70,000 people moved from unemployment into employment and that the remaining 2.53 million still remained unemployed.In fact, 530,000 i.e. more than 7 times this figure, moved from unemployment into employment! And a further 460,000 moved from employment into unemployment. It was the ‘net change’ of 70,000 that led to a reduction in unemployment by this  number. The gross flows in this quarter,( both in/out of unemployment) amounted to just about 1,000,000 i.e. about 40% of the total unemployment stock! The composition of the 2.6/2.53 million has changed markedly,these are a very different group of people from the previous quarter. The stock was changed by the enormous gross flows that are ‘hidden’ beneath the net change.

Averages

Everyone knows what an average is,right? What could possibly be a problem here? We know that the expected temperatures,sunshine and rain in holiday locations are averages from the past and we know what cricketers’ batting and bowling averages are. We might refer to our school , university or football team as ‘average’. In short,an average is seen as a generalisation about a ‘population’ in general:their height,weight,qualifications,health,car ownership,food consumption or whatever. ‘We’ (as a country,a group of people,a city,an ethnic group,a sector of the economy) are better off (or poorer),better fed,more at risk,travel more or whatever. We,as a whole,overall,in general, on the ‘average’.

Actually there are 2 big potential problems here.

The first problem is that there are different measures of what constitutes the ‘average’. The (arithmetic) ‘mean’ is calculated by dividing the total/sum of the variable by the number of relevant observations of it eg the sum of the heights of everyone in a class divided by the number of people in it provides their ‘mean’ height. This is what colloquially is most often used as the average

It is however not the only,or always the ‘best’ means of so doing. The ‘mode’ is the most frequently occurring number in a set of observations eg the most common height,the most frequently occurring observation. This can of course be quite different from the mean,which may not occur frequently or even,with small numbers,at all.And the ‘median’ is a further possible measure of the average. This refers to the middle observation when they are all ranked in order eg in order of height. Here,half of all observations are below and half above,the median.

The second issue is linked to the first. If the population we are dealing with is,let’s say it is the people of the UK, heterogeneous in respect of the variable we are measuring,then the average,however measured,will not capture the characteristics of the whole very well.If there is considerable variety,difference,variation then what is the average saying? It is a bit like adding together all the colours of the rainbow and getting….white (or black: this is controversial!). This is especially important in socio-economic matters.

For example,what do average earnings (for the UK workforce) really mean,given the extraordinarily wide variations in earnings between people? For example,the top 10% of male full time earners earn ‘3.8 times that of the bottom such 10%.What does the average unemployment rate mean,when it varies so much between social groups and geographical areas? For example, ‘JSA’ unemployment in England varies between 1.3% in Wokingham to 8.4% in Hull.What does economic growth of 2% mean,if that is an average which reflects rapid growth in London and actual decline in Yorkshire? For example, through the recession from 2007-12, Inner London grew (in terms of  nominal GVA) by 4% a year compared to an actual decline in  South Yorkshire.

In consequence,we really need to capture,alongside the average,a measure of the variation,the distribution,the polarisation,the degree of inequality if you will,across the population. The mode and median at better at capturing some of this in unequal distributions (eg the mode is below the mean when the majority earn less than the mean and the high earnings at the very top skew the distribution) but the best way is to focus,in parallel to the pursuit of what is happening to the average,on the overall distribution of observations-this means looking at the percentile distribution ie each tenth of the population under observation,grouped if required in order to simplify,into say,quartiles, so that ‘difference’ can be observed and articulated.

There are many more related issues that are worth reviewing in the Numbers Game. And the issues at stake are very important. I may return to them in due course. Do you think I should?