High skilled and resilient: how a strong skills base enables city growth

May 28, 2015

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In the first of a series of blogs exploring which factors lead to good growth, we look at the relationship between skills and the local economy.

Since 2012, the Demos-PwC Good Growth for Cities index has scored a range of UK cities on their ability to grow sustainably by evaluating multiple components of the local economy which are seen to define economic success in the eyes not just of business but importantly the public. Good growth is about more than just levels of employment and income. It captures a broad range of factors, including the key enablers of growth such as housing and transport infrastructure and takes into account the downsides of growth such as congestion and damage caused to the environment.

In our most recent research, we've taken a look back at how cities have performed over the past decade. We found that the majority of cities saw their absolute index scores fall, as recession caused rising unemployment and falling incomes – the most heavily weighted factors in the index. However, a handful of cities were able to maintain good growth throughout the period. So why was there this variation in performance?  

To understand what led some cities to grow while others struggled, we have analysed the link between each component of the index in a three year period, 2005-07[1], and the total index score growth over the subsequent ten year period. Table 1 shows that the strongest driver of good growth arising from this analysis is the skill level: cities with a high proportion of skilled workers in 2005-07 were more likely to grow over the period of recession through to the recent recovery.

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Our measure looks at the qualifications of the workforce, specifically the proportion with at least A-level skills. In many ways, this strong relationship is not unexpected. Skilled workers tend to be more flexible, able to learn new skills and be entrepreneurial. In a recession these workers can also adapt to a changing job market and also drive new ventures to support a recovery. High skilled workers benefit low skilled workers too, through the creation of job opportunities and the demand for supporting services.

The link between skills and economic growth is also widely researched. However, current thinking is focusing on the additional resilience to economic instability which skills provide. In the recent report, No City Left Behind, the Work Foundation found “the key determinant of the impact of the recession on urban unemployment was the skills of the population”. It too found that the groups of cities with a high proportion of skilled workers performed more strongly during the recession.

In addition, we have found that the link between skills and growth is consistent across age groups. Often the focus of businesses is on attracting new graduates and young skilled workers, while policy makers worry about the pathways into work of school leavers. While this remains essential, attracting and retaining older skilled workers is likely to be just as important as the people live longer lives. Indeed, the older worker has the advantage of offering a combination of qualifications and considerable experience, which can compensate for the reduced number of working years they have to contribute in comparison to younger workers.

Recently, cities across the UK have also been strengthening links between universities and the local economy, boosting the local innovation ecosystem. Our index results support this trend. Chart 1 demonstrates how graduates are linked to a resilient economy. Cities with a higher percentage of graduates in 2005-07 saw index scores start higher and remain broadly constant. In contrast, cities with a low percentage of graduates in 2005 performed less well initially and this declined further over time.

High proportions of graduates will be particularly important in driving growth in high tech sectors, notably those linked to the digital economy. As our recent research shows, the relative scale of new digital job creation is a powerful creator of subsequent total employment growth for UK regions.

Chart 1

So what are the implications for cities? Skill levels vary across the UK’s cities, and so for those at the lower end of the scale (lightly coloured on the map), increasing skills should be a priority to increase resilience in difficult economic times and maximise opportunity in recovery. And although attracting young skilled workers and graduates is essential, our research also suggests experienced skilled workers are just as beneficial and cities should look to attract and retain these as well.  

Of course, this poses challenges for city and business leaders – how to keep talented school leavers and graduates from leaving a place once qualified. This needs employers to help navigate graduates to career opportunities that will attract them and work closely with higher education institutions to match people to opportunities. Local Enterprise Partnerships also have a role to play in connecting what employers want locally and the provision from the local skills system: a role that might grow as devolution and decentralisation progresses. And Government could also help by making the skills system simpler and so make it easier for businesses to engage, from apprenticeships through to university provision.

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Looking forward, improving the educational footprint and strengthening the anchor educational institutions and pathways into local work is a must for cities across the UK, not only for its short term benefits, but to ensure that growth is resilient in the long-run.

 

[1] Annual data at local authority level is prone to some fluctuation. We have aggregated results into three year periods in order to minimize the risk of generating spurious results off the back of this variation.