The local employment benefits of growing advanced industries spread well beyond workers in those sectors, a new report from the Resolution Foundation published today (Monday) has found.
However, this good news for jobs does not spill over into good news for pay, so low-paying sectors should also be a key focus for the government’s industrial strategy.
The report, A rising tide lifts all boats?, is the first to seriously examine the central premise of the growing UK consensus on industrial strategy: that helping advanced sectors develop and spreading them across the country is the route to growth that is inclusive across places and also inclusive within places.
This theory, in which even those not directly involved in advanced sectors will benefit from positive spillover effects, underpins both the current industrial strategy and city economic empowerment.
The analysis finds that between 2009 and 2015, 234,000 advanced industry jobs (high-tech, digital economy, tradeable finance and creative industry roles) were created in the UK. This in turn led to the creation of 147,000 local jobs in service sectors as a result of greater demand for the likes of restaurants, bars, shops or hair salons.
The analysis found that for every 10 jobs created in advanced industries, another six jobs are created in other, locally-based service sectors. This suggests that an industrial strategy which promotes the growth of higher-end sectors can create wider benefits for local communities too, including for people not directly employed by those industries.
But the headline figures mask great regional disparity in both the spread of advanced industries and how inclusive the jobs benefit has been. Regionally the South East and London have dominated advanced industry growth. And while Cambridge saw a further 28 jobs created in the local service sectors for every 10 jobs created in advanced industries between 2009 and 2015, Bath has experienced a fall of 800 locally-based service sector jobs, despite creating 8,600 jobs in advanced industries.
The report argues that this variation in experience highlights the importance of policy makers at all levels. While the government’s approach to its industrial strategy will be crucial, policy makers such as the newly-elected Metro Mayors and others in cities and local authorities will need to act to make sure the growth generated is inclusive, and not limited to those with the skills or good fortune to work in a particular sector.
While advanced industries can provide wider boosts to employment, their ability to boost pay for lower earners is less clear. The analysis finds that a 10 per cent increase in advanced industry jobs in an area led to a 1.7 per cent increase in pay for workers with average education levels. But for lower-educated workers, average wages actually fell by 2.2 per cent, equivalent to a drop of £85 a year for someone working full-time.
This is due to rising employment amongst lower paid workers dragging down the average wage, rather than anyone seeing their pay fall. Nonetheless, it still points to the limits of focusing on the growth of advanced sectors.
The Foundation says that there are major implications for the government’s industrial strategy from this evidence on employment and pay. It supports the effort to grow and spread advanced industries. But it also shows that an industrial strategy seeking to raise prosperity inclusively will need to focus on raising productivity in less glamorous but vital sectors like retail and hospitality, which employ a large part of the workforce.
Stephen Clarke, policy analyst at the Resolution Foundation, said:
“It is extremely welcome to see strong growth in advanced industries, especially as this growth often spills over to provide employment opportunities for a broad range of people in a local area.
“Our report shows that an industrial strategy which encourages high-tech, high skilled well-paying companies to open in a diverse array of areas could have a powerful positive impact on living standards. It could also help end the regional living standards lottery that has prevailed for so long.
“But it’s also clear that this won’t be enough. Growth in these sectors doesn’t bring the badly-needed wage growth that is so key to living standards. That’s why the government’s industrial strategy needs to also focus on how to boost productivity amongst the less glamorous, but very large, low-paying sectors like retail and hospitality.
“The success of an industrial strategy doesn’t rest solely with Westminster. Newly-elected Metro Mayors also have a key role to play alongside national government in ensuring that a new industrial strategy can deliver for families right across their regions and the country.”
Notes to Editors
Copies of A rising tide lifts all boats? Advanced industries and their impact upon living standards are available from the press office.