Job creation for inclusive growth in cities by Andy Pike, Neil Lee, Danny MacKinnon, Louise Kempton and Yohan Iddawela
This report identifies the ‘more and better jobs’ gap in UK cities, explains the role of labour demand in city economies, and sets out the aims, rationales and types of demand-side policies for inclusive growth. A ‘whole city’ place-based approach is outlined and policy options and priorities identified.
Job creation for inclusive growth in cities Andy Pike, Neil Lee, Danny MacKinnon, Louise Kempton and Yohan Iddawela
There is a significant ‘more and better jobs’ gap of unemployment, insecure or low paid work in Britain’s major cities. Policy focus on supply-side labour market measures has proven necessary but not sufficient to deliver inclusive growth. How can policy-makers intervene on the demand side of city labour markets? This report presents the rationale for demand side interventions and international case studies of different types of intervention.
What you need to know •
Neither demand- nor supply-side policies alone are likely to make sufficient contributions to inclusive growth in UK cities. International examples suggest they are best used together.
•
There are strong economic rationales for demand-side approaches – these include enabling linkages, improving information and co-ordination, aiding innovation, avoiding low-skills traps, and developing resilience.
•
Demand-side policies can include targeting inclusive growth sectors; skills development; engaging and partnering with employers in priority sectors; lobbying for greater devolved powers; and improving policy analysis and evaluation frameworks.
We can solve UK poverty JRF is working with governments, businesses, communities, charities and individuals to solve UK poverty. Job creation for inclusive growth in cities shows how increasing demand for labour can contribute to growth that benefits everyone – a key focus of our strategy to solve UK poverty. August 2017
www.jrf.org.uk
Contents
Executive summary
1
1
Introduction
3
2
The scale and nature of the inclusive growth challenge in UK cities:
5
the ‘more and better jobs’ gap 3
Rediscovering the demand side, understanding city economies: aims,
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rationales and types of demand-side policies for inclusive growth 4
Learning from international experience: case studies of demand-side
29
initiatives in cities 5
Conclusions and policy options: rebalancing city policy for demand-
44
side policies for inclusive growth under existing and enhanced powers and resources
Acknowledgements
51
Appendix 1: City definitions
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Notes
54
References
55
About the authors
61
List of figures 1
The ‘more and better jobs gap’
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2
Occupations and probabilities of being low paid, underemployed or
9
insecure, controlling for individual characteristics 3
Sectors and probabilities of being low paid, underemployed or
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insecure, controlling for individual characteristics 4
Labour demand and supply in the city economy
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5
A ‘multiple streams’ framework of policy analysis
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List of tables 1
The more and better jobs gap by city, 2015
7
2
More and better jobs gap components
8
3
Detailed occupations with highest/lowest share of ‘good jobs’
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4
Detailed industries with highest/lowest share of ‘good jobs’
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i
5
Rationales for demand-side policy interventions
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6
Types of complementary demand-side policies in cities
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7
Case studies of demand-side policies for inclusive growth in cities
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ii
Executive summary Key points This report identifies the ‘more and better jobs’ gap in UK cities, explains the role of labour demand in city economies, and sets out the aims, rationales and types of demand-side policies for inclusive growth. A ‘whole city’ place-based approach is outlined and policy options and priorities identified. •
There is a significant shortfall in labour demand in 12 major UK cities.
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Local industrial strategies can raise labour demand in cities and can complement supply-side policies.
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Policy interventions should be based on clear and robust aims and rationales and the careful coordination with supply-side initiatives.
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The priorities for demand-side policies are: identifying and targeting inclusive growth sectors; fostering demand-led skills development; building closer employer engagement and partnership focused on priority sectors; lobbying for greater devolved powers; and strengthening policy analysis and evaluation frameworks.
The ‘more and better jobs’ gap in UK cities. Overall there is a jobs gap (the number of people who cannot find work, or as much work as they would like) of around 3.5 million and a better jobs gap (people who are in work, but for whom the work is not high quality) of around 2.4 million in the 12 major UK cities studied: a total ‘more and better jobs gap’ of just under 5.3 million jobs. (The ‘more jobs’ gap and the ‘better jobs’ gap are not mutually exclusive categories, and therefore do not sum to the ‘more and better’ jobs gap).
Rediscovering the demand-side in city economies Improving labour supply has proved necessary but insufficient in delivering inclusive growth. If used in isolation, neither demand- nor supply-side policies alone are likely to make sufficient contributions to inclusive growth in UK cities. Labour demand in cities is shaped by the structure and dynamics of tradeable (sold outside the city economy) and non-tradeable (sold only within the city economy) sectors, agglomeration economies (the concentration of economic activity) and diseconomies, and the interactions between jobs and people in and between places. The close inter-relations between demand and supply in city labour markets means complementary interventions are needed on the demand and supply sides. The report identifies six rationales for demand-side policy intervention for inclusive growth: addressing demand gaps; enabling demand linkages; preventing information and co-ordination gaps; closing innovation gaps; avoiding the low skills trap; and building resilience and adaptability.
Learning from international experience The report investigates six international case studies which provide several lessons for the UK: •
demand- or supply-side initiatives on their own are insufficient for city development and addressing inclusive growth aims
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an aspiration and focus on generating more and better jobs needs to be maintained by city leaders and institutions
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place-based approaches are required that adapt and tailor policy mixes appropriate to address the needs of particular city economic circumstances
1
•
economic and workforce development initiatives need to be better integrated from a demand-side perspective, focusing on target sectors that are priorities for inclusive city economic development
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private and public sector employer engagement and partnership is fundamental
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local partners need autonomy and discretion to design and adapt national and state programmes and funding to address local needs with demand-side policies
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programmes need to be legible and visible to target groups and communities
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clarity, consistency and persistence of leadership is critical
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stronger data collection, monitoring and evaluation frameworks are required.
Demand-side priorities for inclusive growth The report identifies five priority areas for UK cities’ industrial strategies: •
identifying and targeting inclusive growth sectors
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fostering demand-led skills development
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building closer public and private sector employer engagement and partnership focused on priority sectors
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lobbying for greater devolved powers and resources for city authorities and key partners to pursue demand-side polices for inclusive growth
•
strengthening data collection, analysis, monitoring and evaluation activities and frameworks.
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1 Introduction UK cities are increasingly concerned about inclusive growth, focusing not only on the level and rate of growth, but also on its quality and social and spatial distribution (OECD, 2016; RSA Inclusive Growth Commission, 2017). The aim of inclusive growth is to move from socially and spatially unequal, uneven and exclusive forms of growth towards (relatively) more equal, even and inclusive growth. The growing momentum behind the inclusive growth agenda reflects several important trends. The first is international interest in the problem of inequality and stagnant living standards for many groups, particularly in post-industrial cities and regions (Berube, 2014; European Commission, 2016; OECD, 2016; Ostry et al, 2014). The benefits of economic growth in the 2000s were not evenly shared; cities with successful economies experienced growing inequality, while others suffered relative decline (Lee et al, 2014; Pike et al, 2016a). Such social and spatial disparities hold back improvements in productivity and future growth prospects, and increase social costs (Cingano, 2014). A second trend has been the continued move towards more decentralised forms of governance, with cities increasingly seen as important both for economic growth and tackling inequality (Lee et al, 2016). In the UK, selected urban areas have been given new devolved powers and responsibilities over their local economies and resources through a series of programmes such as city and devolution deals, and the establishment of metro mayors and combined authorities. At the same time, there is a renewed interest in demand-side approaches to economic development (Haldane, 2015; RSA Inclusive Growth Commission, 2017; Summers, 2016). The global financial crisis, economic downturn and uneven recovery have highlighted the limitations of supply-side policies to labour markets, with only weak wage growth. In response, new policy agendas have been emerging on the demand side. The UK government has published an industrial strategy green paper and established the Department for Business, Energy and Industrial Strategy, led by the former Minister for Cities, signalling a commitment to a more active government role in the economy based around stimulating the demand for labour. A new view of demand-side approaches is beginning to form, taking a place-based approach to connecting and integrating policy on a geographical basis, and demonstrating its distinctiveness from old arguments around industrial policy. Yet, despite the significance of these three trends – concern about lagging living standards, devolution to cities and the new interest in demand-side approaches – research and policy development have yet to consider whether and how these agendas can be linked. This creates a gap in our understanding and policy. How can cities develop industrial strategies to stimulate inclusive growth? This report addresses this question and develops new thinking about the role of demand-side approaches to inclusive growth at the city level. The research aimed to develop new ideas and innovative approaches to help cities develop demand-side strategies and policies towards inclusive growth. Demand-side policies for inclusive growth seek to raise the level and enhance the quality of demand for labour in a city economy, increase labour demand for specific groups within the city, and/or improve the quality of jobs. Moving in this direction involves rebalancing the emphasis of city economic strategies and policies from their longstanding focus on supply-side interventions, developing economic rationales and evidence to underpin and support complementary and supportive demand-side strategies and policies. The objectives of the research were: •
to generate ideas and conceptualise the rationales and roles of demand-side policies at the city level in contributing to inclusive growth
•
to develop a set of demand-side policy proposals for economic development strategies in UK cities, capable of contributing to inclusive growth given both current and potentially enhanced devolved powers and resources.
The research followed a five-part methodology:
3
•
Definition and conceptualisation: A literature review of academic, grey and policy sources to inform the development of definitions and conceptualisations of the demand side in city economies.
•
Data analysis: Secondary data analysis was used to identify the scale of the ‘more and better jobs’ gap in major cities in the UK. This analysis was based on estimates of the numbers and types of new higher quality jobs needed to reduce low pay, under-employment, unemployment and involuntary inactivity, and contribute to inclusive growth in cities.
•
Aims, rationales and types of demand-side policies for inclusive growth in cities: A review of the urban economic development and industrial policy literature and selected interviews with key experts were carried out to identify and elaborate the aims and rationales for policy interventions on the demand side, different types of policies and their targeting.
•
International case studies: Six international case studies of different demand-side policies for promoting inclusive growth from Australia, Europe and the US were done. This case analysis involved reviews of secondary sources and interviews with key policy actors. Analysis focused on: background and context; demand-side rationales; policy types and strategies; industry targeting; governance and leadership; design, implementation and impact; challenges and limitations; key lessons for UK cities.
•
Policy development: The findings of the previous stages were integrated to outline a strategic approach and a framework based on the rationales for intervention. This section set out proposals for different types of demand-side policies for inclusive growth in UK cities, given their current powers and potentially enhanced devolved powers and resources.
Section 2 outlines the scale and nature of the challenge of inclusive growth in UK cities and estimates the ‘more and better jobs’ gap. Section 3 explains understandings of the demand side in city economies and its links to demand for labour, and sets out the aims, rationales and types of demand-side policies for inclusive growth in cities. Section 4 presents the analysis and learning from the international case studies. Finally, section 5 sets out the strategic approach and policy options for UK cities under existing and enhanced powers and resources.
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2 The scale and nature of the inclusive growth challenge in UK cities: the ‘more and better jobs’ gap Any attempts to use demand-side approaches to create inclusive growth need to be supported by an awareness of the scale of the challenge. This section considers the scale of the demand shortfall in the UK’s major cities. It does this by presenting new evidence on the number of good-quality new jobs which are needed to address current problems of low pay, unemployment, underemployment and insecure work.
The ‘more and better jobs’ gap How many jobs are needed if UK cities are to address the problems of poor job quality and unemployment? To address this question the research builds on the analysis of Turok and Edge (1999) who identified a ‘jobs gap’ in British cities; a measure of the scale of the imbalance between the demand and supply for labour. They focused on changes over time, but we are simply interested in the scale of the challenge: the number of new good-quality jobs needed for everyone who wants to work in a city economy to be in employment which is not low paid or insecure, and where they are not underemployed or working part-time when they want permanent employment. Clearly, achieving full employment is, in practice, impossible, but this figure gives an indication of the scale of the shortfall in high quality employment in the UK’s major cities. The first task is to identify the number of people in a city economy who want to work – a measure of the quantity of work needed for everyone who wants to be in work to have as much as they would like. To do this, the normal methodologies of calculating city labour market statistics are adapted. The population of a city is normally divided into three groups: (a) the employed – those in work; (b) the unemployed – those out of work but actively looking for it; (c) the economically inactive – the remainder who are neither in work nor seeking it, normally including the retired, those looking after family, or those in full-time education. One way of calculating the jobs gap is to consider how many jobs would be needed to move those in unemployment (b) into employment (a). But this does not quite capture the shortage of labour demand. For example, many economically inactive people (c) might want to work but remain inactive because there is insufficient demand for their labour. Similarly, many of those in employment (a) may be underemployed (wanting to work more hours than they can get) or they may be in part-time work while looking for full-time work. Each of these will reflect a lack of labour demand in the local economy. This is the ‘more jobs gap’ and it comprises four groups of people who cannot get work or get as much as they would like: •
the unemployed – those not in work but who are available and actively seeking it
•
inactive people – who would like to be in the labour market
•
underemployed workers – who would like to work more hours
-
including people working part-time while seeking full-time employment.
A second group of people are in work but in insecure and/or low-paid jobs. In some ways, this situation also reflects a lack of labour demand, as individuals are not able to negotiate better contracts while employers face limited pressure to raise wages. The analysis defines two sets of workers in this group: •
low paid – workers earning less than the National Living Wage (London Living Wage if in London)1
5
•
insecure workers – workers on temporary contracts who would prefer to be on permanent contracts.
This is the ‘better jobs gap’ because it is an indication of insecure employment. Increasing demand for labour at a local level can help this group by increasing wages and/or increasing the availability of permanent employment opportunities. Figure 1 illustrates the ‘more and better jobs gap’.
Figure 1: The ‘more and better jobs gap’
Note: The more and better jobs gaps are not mutually exclusive, as individuals can be both underemployed and in low pay Source: Authors’ research
Defining cities The research focuses on 12 major UK cities because of their economic importance and potential powers to influence the demand side of their labour markets. These cities are Newcastle, Cardiff, Sheffield, Manchester, Liverpool, Birmingham, Leeds, Nottingham, Glasgow, Bristol, London and Edinburgh (data availability meant Belfast could not be included). There are many possible geographical boundaries for these cities, reflecting the built-up area of a city (eg primary urban areas), labour market areas (eg travel to work areas) or local government structures (eg local authorities). The focus here is on units which are large enough to identify the ‘more and better jobs gap’ with some degree of precision, and which reflect recent developments in urban development policy and governance. To do this, two recent policy agendas are used to define the cities for analysis: (a) the combined authority boundaries or (b) where these are not available, the city deal area. The exception is Nottingham, which is part of a relatively large proposed combined authority, but which was the only local authority which was part of the Nottingham City Deal. In this case, Clarke’s (2016) definition of the wider Nottingham area is used. The local authorities included in each urban area are defined in Appendix 1. Table 1 shows the more and better jobs gap for each city.
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Table 1: The more and better jobs gap by city, 2015 City
Better jobs gap (%)
More jobs gap (%)
More + better jobs gap (%)
Newcastle Cardiff Manchester Liverpool Sheffield Nottingham Birmingham Leeds Glasgow London Edinburgh Bristol Total:
21 18 20 18 19 20 17 19 15 14 18 15
24 27 25 25 25 23 26 24 22 23 20 21
41 40 40 40 40 39 39 39 34 34 34 32
Total labour force + Inactive but wants work 749 765 1,453 758 977 517 1,378 1,199 455 4,843 725 610
Better jobs gap (000s)
More jobs gap (000s)
More + better jobs gap (000s)
154 140 292 140 185 102 235 227 70 677 128 92 2,442
182 204 357 192 248 120 356 288 102 1,127 148 126 3,450
304 308 582 303 389 203 540 464 157 1,642 244 198 5,334
Notes: Figures may not sum due to rounding. Cities ranked by % more and better jobs gap, as a percentage of the combined population who are in the labour force (employed or unemployed) or inactive but saying they want work. Source: Authors’ elaboration on Annual Population Survey, 2015
This analysis gives an overall figure for the 12 major UK cities of a ‘better jobs’ gap of around 2.4 million and ‘more jobs’ gap of around 3.5 million: a total ‘more and better jobs gap’ of just under 5.3 million jobs. To illustrate the scale of the challenge for city policy-makers, this number is roughly equivalent to the working-age population of London (5.9 million). There are some important caveats to these findings. First, while these results will mostly reflect demand deficiency, particularly given the focus placed on supply-side policy in recent years, supply-side issues such as spatial mismatch may also partly explain our results. For example, while there may be excess demand for labour in a city economy overall, some disadvantaged residents may live in areas which are disconnected from the rest of the city and its job opportunities (Rae et al, 2016). Moreover, the focus in labour market policy has been on incentivising people to enter the labour market, with less consideration given to issues of skill mismatch or job quality once in work. Poor transport links or high costs may prevent them taking up available employment. Table 2 breaks down the analysis into its constituent parts. Because these are based on survey data, it is important to remember that these figures are not precise. But some patterns are clear. There is some division of the better jobs gap, which is lowest in London (even though we control for the London Living Wage) and Bristol and Glasgow. In terms of low pay, around 20% of the labour force and those who are inactive but want to work are in this category. The more jobs gap is highest in Cardiff, a city region which includes parts of the Welsh valleys. It is lowest in Edinburgh.
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Table 2: More and better jobs gap components More + better jobs gap (%)
Better jobs gap (%)
City
Of which:
Earning < living wage (%)
Newcastle Cardiff Manchester Liverpool Sheffield Nottingham Birmingham Leeds Glasgow London Edinburgh Bristol
41 40 40 40 40 39 39 39 34 34 34 32
21 18 20 18 19 20 17 19 15 14 18 15
19 17 19 17 18 18 16 18 14 13 16 14
More jobs gap (%)
Nonpermanent, wanting permanent (%) 2 2 2 2 2 2 2 2 2 2 2 1
24 27 25 25 25 23 26 24 22 23 20 21
Of which:
Unemployed (%)
Underemployed (%)
Inactive, wanting work (%)
7 7 7 8 7 7 9 7 7 6 5 6
11 13 12 11 13 12 13 12 10 12 12 12
8 8 7 8 7 6 7 6 6 6 5 5
Note: Cities ranked by % more and better jobs gap; categories overlap Source: Authors’ elaboration on Annual Population Survey, 2015
What are better jobs? Targeting sectors and occupations To effectively create new employment for inclusive growth policy-makers need to understand what type of occupations and sectors are likely to offer relatively higher quality employment for the groups who are most likely to be in poor quality employment. To investigate this issue, the same 2015 Annual Population Survey data as above is analysed, but with a focus on probabilities of being in the more and better jobs gap categories. For simplicity, as qualifications are one of the most important predictors of job quality, the analysis focuses on outcomes for those who do not have degrees or higher education (that is, qualified below NVQ4). The analysis cannot meaningfully include those who are out of work when looking at occupations, so the unemployed are excluded. Following Green et al (2017), we then focus on the share of less well-qualified workers in each occupation and sector who are in low quality jobs, defined as the following three categories: •
underemployed workers – who would like to work more hours than they can get, such as people working part-time while seeking full-time employment
•
low paid – workers earning less than the Living Wage (London Living Wage if in London)2
•
insecure workers – workers on temporary contracts who would prefer to be on permanent contracts.
This is a similar methodology to that used by Green et al (2015; 2017) in their studies on low pay, with the difference that the measure of poor-quality work used in this analysis is extended to include the underemployed, involuntary part-time workers and insecure workers. Note that to maximize the sample, our analysis focuses on everyone, not just those in the 12 cities studied in the report.
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Occupations and the more and better jobs gap Our analysis begins with a relatively low level of detail to investigate which occupations have a high probability of offering low quality employment. To do this, a a probit regression model is used which statistically controls for a series of individual characteristics such as age, gender or qualifications (although for simplicity we remove all those with degree level qualifications). Essentially, it removes the influence of all these factors on probabilities of being low paid or underemployed, and so allows a view on the impact of occupation alone on the probabilities of being in low quality employment. Figure 2 presents the marginal effects – a measure of probability which essentially reveals the increased probability of being in one of the above three categories associated with each occupation. When the marginal effect is 0, the chance of being in a low-quality job is equal to that of the reference category (in this case, managerial employment). If it is negative, being in each occupation is associated with being less likely to be in the low-quality employment category; if more than one, workers in this sector are more likely to be in the low-quality employment category. This exercise helps identify the types of occupation which might help less well educated workers get good jobs. The bars represent confidence intervals – indicators of how confident the analysis can be the results are ‘real’ rather than the result of random chance.
Figure 2: Occupations and probabilities of being low paid, underemployed or insecure, controlling for individual characteristics
Note: Figures show marginal effects of probit regression model of probability of being low paid/underemployed/insecure/involuntary part-time for workers without degree level qualifications. Controls: ethnicity, country of birth, gender, age, age squared, qualifications, public sector, disability status. Figures less than 0 indicate lower probabilities, relative to managers and senior officials; figures greater than 0 indicate higher probabilities. Source: Annual Population Survey, 2015
There is a clear hierarchy. Relative to managerial occupations, workers in professional occupations are the only category with a lower probability of being in low quality employment, although the effect is almost zero. The occupational categories with the highest probability of being low quality are: elementary occupations; sales and customer service; caring, leisure and other service occupations; and, to a lesser extent, process, plant and machine operatives. To get a more detailed picture of which occupations might provide better quality employment for less well educated workers, Table 3 gives the raw percentages of workers in this category by detailed educational group. The top 20 jobs for poor quality employment are on the left-hand side, the 20 best on the right-hand side. Occupations with the highest shares of any of the categories defined above tend to be elementary occupations, including service work such as retail, other sales work, cleaning and security. These show the 9
important role of the service sector, and particularly employment in retail and personal services, in low job quality. In contrast, better jobs by our category are – almost by definition – those with fewer poor quality jobs.
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Table 3: Detailed occupations with highest/lowest share of ‘good jobs’
Poor quality jobs (%) 71
67
Highest low quality employment (%) Industry Other elementary services occupations
Poor quality jobs (%) 14
Sales assistants and retail cashiers Elementary sales occupations Elementary cleaning occupations Elementary security occupations Elementary process plant occupations
14
Childcare and related personal services Cleaning and housekeeping managers and supervisors Housekeeping and related services Caring personals
11
49
Elementary storage occupations
10
49
Food preparation and hospitality trades'
10
45
10
44
Elementary agricultural occupations' Process operatives'
10
43
Sales supervisors'
10
42
Customer service occupations Hairdressers and related services'
10
Sports and fitness occupations' Assemblers and routine operatives' Leisure and travel services'
8
67 65 60 55
54 52
50 50
42
41 40 39
13 13 12 11
11
10 10
9
6 3
Lowest low quality employment (%) Industry Draughtspersons and related architectural technicians Engineering professionals Construction and building trades Legal associate professionals Quality and regulatory professionals Managers and proprietors in other services Chief executives and senior officials Production managers and directors'
Senior officers in protective services Business, finance and related associate professionals Managers and directors in transport and logistics Construction and building trades supervisors Functional managers and directors' IT and telecommunications professionals Architects, town planners and surveyors Media professionals Business, research and administrative professionals Protective service occupations Financial institution managers and directors Skilled metal, electrical and electronic trades supervisors
11
Note: Figures show percentage of workers without NVQ4 who are in jobs which are either low paid/underemployed/insecure involuntary part time. Only occupations with more than 50 observations included. Source: Annual Population Survey, 2015
Figure 3 repeats the same regression exercise for broad occupational categories. The results show a familiar skills-biased pattern. The highest probability of being underemployed/low paid is in elementary work, followed by sales and customer services and caring, leisure and other services. Employment in process, plant, and machine operative occupations – mainly in manufacturing – are relatively less likely.
Sectors and the more and better jobs gap In addition to occupational targeting, cities often focus on particular industrial sectors. Figure 3 shows which sort of industries tend to provide good jobs for workers without degree level qualifications. As before, figures above 0 indicate higher probabilities of being in ‘low quality’ jobs, those below indicate lower probabilities. This time the reference category is agriculture.
Figure 3: Sectors and probabilities of being low paid, underemployed or insecure, controlling for individual characteristics
Note: Figures show marginal effects of probit regression model of probability of being low paid/underemployed/insecure involuntary part time for workers without degree level qualifications. Controls: ethnicity, country of birth, gender, age, age squared, qualifications, public sector, disability status. Figures less than 0 indicate lower probabilities, relative to agriculture and fishing; figures greater than 0 indicate higher probabilities. Reference category is agriculture. Source: Annual Population Survey, 2015
Mining and quarrying and electricity, gas and air conditioning supply both have relatively high probabilities of providing high quality employment. These two sectors are both dominated by larger organisations and are relatively unionised. Construction is a sector which tends to employ relatively large low-skilled labour forces. Other positive probabilities come from information and communication and finance and insurance. Negative probabilities come from the service sector. Wholesale and retail and accommodation and food services have relatively high probabilities of low quality work. Education, perhaps surprisingly, also has high probabilities, although this is likely to be due to part-time teaching assistants. Admin and support, health and social work, and arts and entertainments all have high probabilities.
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Further details are shown in Table 4, which shows the likelihood of those in each job category having poor quality jobs) for the workforces who are qualified below degree level. This analysis uses a much more detailed definition of ‘sector’, but does not undertake a regression analysis. The results again suggest employment in sectors such as oil and gas extraction, telecoms, and water supply, all of which are relatively unionised and dominated by large companies, tend to offer better jobs for non-degree educated workers. Other industries, such as broadcasting, often have high skill levels. Of these industries, construction is perhaps the largest. The results also suggest a strong public sector impact, which still provides good jobs for those without degrees. Sectors with the highest share of jobs with low pay/underemployment tend to be service sector work, including food services, residential care, accommodation and retail. Education has a relatively high share, but this is largely driven by workers in pre-primary education and primary education in teaching assistant roles, with better paid workers tending to be qualified to degree level by definition.
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Table 4: Detailed industries with highest/lowest share of ‘good jobs’ Highest low quality employment (%) Share of jobs (%) 60
Lowest low quality employment (%) Share of jobs (%) 17
55
Residential care activities Food and beverage service activities Retail trade, except vehicles Accommodation
52
Education
16
52
Gambling and betting activities Manufacture of wearing apparel Security and investigation activities Services to buildings and landscape Manufacture of food products Sports, amusement, recreation
16
42
Veterinary activities
14
41
Employment activities
14
40
Other personal service activities Social work without accommodation Libraries, archives, museums Domestic personnel
14
Manufacture of textiles Office admin, support and other Creative, arts and entertainment
11 9
60 55
50 47 47 46 45
40 38 37 36 36 35
17 17 17
16 15 15 15 15
14 13 13
7
Civil engineering Repair and installation of machinery Specialised construction activities Head offices; management consultancy Manufacture of pharmaceuticals Auxiliary to financial and insurance Public admin, defence, social security Construction of buildings Remediation and other waste management Publishing activities Computer programming and consultancy Other mining and quarrying Programming and broadcasting Financial excluding insurance and pension Electricity, gas and air conditioning supply Insurance, reinsurance and pension Manufacture of coke and refined petrol Telecommunications Water collection, treatment & supply Extraction crude petroleum and gas
Note: Figures show percentage of workers without NVQ4 who are in jobs which are either low paid/underemployed/insecure/involuntary part time. Only industries with more than 50 observations included. Source: Annual Population Survey, 2015/6
Having established the scale and nature of the inclusive growth challenge in UK cities and the occupational and sectoral dimensions of better quality jobs, the Section 3 addresses the role of the demand side in city economies and the aims, rationales and types of policy interventions.
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3 Rediscovering the demand side, understanding city economies: aims, rationales and types of demand-side policies for inclusive growth The demand-side of city labour markets has been relatively neglected in recent years, reflecting a preoccupation with the supply side and associated policies. International interest in demand-side policies is growing, although there has been relatively limited thinking about their aims, rationales, policy types and outcomes at the city scale. This interest in the demand side has grown because the limitations of supplyside approaches in addressing city development have become increasingly apparent (Emmerich, 2017), with the improvement of labour supply proving necessary but not sufficient for inclusive growth (Joseph Rowntree Foundation (JRF) and Inclusive Growth Analysis Unit (IGAU), 2017; RSA Inclusive Growth Commission, 2017). Without increasing the availability of more and better jobs, raising labour skills and qualifications can mean people are over-qualified for the available jobs (Schmuecker, 2014). To deliver inclusive growth, the close relationship between demand and supply means complementary, sequenced and supportive policy intervention is needed on the demand and supply sides, for example by generating increased local demand for more skilled labour by employers as well as and at the same time as supporting local labour skill upgrading. Neither supply- nor demand-side policies alone are likely to make sufficiently substantive contributions to inclusive growth in UK cities given the scale of the challenge involved. The supply side of the labour market refers to the provision of labour; the numbers, demographic characteristics and skills of people available for employment. Supply-side policies include those seeking to influence the level and nature of labour supply, such as active labour market policy or unemployment benefits (Carlin and Soskice, 2005). The demand side of the labour market refers to the requirements for labour generated by economic actors in the public, private and third sectors. The demand for labour is a derived demand from organisations producing goods and services; as organisations engage in economic activities to produce goods and services, they generate demand for labour and create jobs. The size, structure and growth of the wider city’s economy are central in determining and shaping the derived demand for labour and the number, type and growth of jobs available (see Figure 4). The skills, productivity and wages of labour are important too. The supply and demand for labour jointly determine the total number and quality of jobs in the economy. In mainstream economic theory, the demand and supply for labour come together through the labour market to determine the numbers employed and their wages through the interaction of the quantities and qualities of labour demanded by employers (the demand side of the labour market) and provided by labour (the supply side of the labour market). Over time in well-functioning markets, price signals are meant to create a balanced (or equilibrium) position where the demand and supply for labour are well matched. It is important to distinguish the demand side of the labour market from the demand for goods and services in the economy, or ‘aggregate demand’. The labour market, along with other markets for factors of production such as land and capital, form part of the supply side of the economy or ‘aggregate supply’. The labour market and other factor markets determine the supply of goods and services in the economy. Many policies which focus on the demand side of the labour market therefore shape the supply side of the economy at the aggregate level (Figure 4). For example, sector development policies focus on the producers of goods and services with the aim of boosting aggregate supply and, in turn, increasing the 16
derived demand from these producers for more labour. But in some circumstances policies might target increasing aggregate demand directly as a way to increase aggregate supply, and therefore the derived demand for labour. For example, at the national level when the economy is in recession, either fiscal or monetary policy aims to raise aggregate demand to maintain output and minimise job losses in the economy.
Figure 4: Labour demand and supply in the city economy
Source: Authors’ research
In practice, there may be several market failures that mean the labour market does not reach a balanced or equilibrium position and mismatches are created between the supply and demand for labour. City labour markets can be more complicated for five related reasons: •
Mismatches exist – rather than temporary or cyclical phenomena that are removed by the working of the labour market, mismatches can persist and entrench problems of under- and unemployment, inactivity, under-utilised economic potential, and low and weak growth (Lee and Sissons, 2016, Pike et al, 2016a). Such problems create legacies within city labour markets that are difficult to address and resolve.
•
Labour markets are highly segmented between sub-markets – where the level and nature of demand and supply for different types of labour are differentiated and where different groups of workers have skills which mean they are not substitutes for each other. The structure, size, dynamics and mobility of people between segments in city labour markets is an important influence upon labour demand (Sissons, 2011). Derived demand for labour within cities can be stratified by different occupational and skills groups, for example strong demand for labour technicians but weaker demand for teachers.
•
Local labour markets are spatially interdependent – commuting patterns between home and work complicate matters and the geographies of labour markets operate as overlapping sub-markets (Gordon, 2002). This means that new jobs created in one part of a city economy may be taken by people living outside that city economy and commuting into the city to work (Coombes and Champion, 2012). This might be a positive outcome overall but one which does not necessarily benefit people living in the city.
•
Labour market institutions complicate market processes – institutions and policies, such as employment laws and minimum wages, offer highly important social protections but can generate frictions and lags that shape how the demand and supply for labour interact. 17
•
The demand and supply sides of a city labour market are closely inter-related and codetermined (economists use the term ‘endogenous’). Chains of demand and supply for labour within city economies are intertwined and interact in direct and indirect ways, for example through the local multipliers of well-paid workers spending money locally that increases local labour demand which, in turn, stimulates further and particular forms of local labour supply.
Rediscovering the demand side of labour markets is an important step towards developing better and more comprehensive understandings of how city labour markets work, and designing effective policies to enable more inclusive forms of growth. In sum, labour markets in cities struggle to work in the ways envisaged by mainstream economic theory because of various mismatches and failures on both the supply and demand sides and in their interaction (Gordon, 2002). It is these sources of malfunction that provide the basis for the demand-side policy interventions discussed below. First it is necessary to consider demand-side policies for inclusive growth in cities in the light of contemporary understandings of city economies.
Understanding city economies Understanding how city economies work is critical to addressing the extent and nature of the derived demand for labour in cities. The focus here is on three dimensions central to how city economies function: the distinction between tradeables and non-tradeables; agglomeration economies; and whether jobs follow people or people follow jobs.
Tradeables and non-tradeables One way of understanding the functioning of city economies and the derived demand for labour is to consider which parts of the economy serve local markets, and which serve wider regional, national and international markets. Central to the level and nature of demand for goods and services and labour and growth within the city economy is the structure and relationship between the goods and services that are tradeable – sold outside the city economy within the national economy and beyond – and nontradeable – sold only within the city economy. This distinction is drawn from export-base theory which divides the city economy into the basic or export sector and its subservient residentiary or non-basic sector (Ha and Swales, 2012). The basic or export sector includes industries such as manufacturing and services such as accountancy or marketing that are traded between places. The non-basic sector includes goods such as utilities and non-tradeable and locally rendered services such as construction, education, healthcare, local banking, personal services and retailing. The tradeable and non-tradeable sectors generate different and particular levels and types of demand for labour in city economies. In the simple model of a city economy, a new local firm in the non-tradeable sector will, unless there is increased demand for the good or service it offers, simply divide up the local market differently, competing with and potentially displacing other local firms. Limited or no additional derived demand for labour may result. Whereas because they are connecting to external sources of demand for goods and services beyond the city, new firms in the tradeable sector will generate new and additional local demand for labour. The tradeable sector is therefore critical to economic activity and labour demand. This sector links the city economy to external sources of demand and generates growth from sales of goods and services beyond the city. Demand is determined by the price of the city’s exports, the income levels of its trading partners, and the price of substitutes in external markets. The tradeable sector is typically based on relatively higher value added, higher productivity and higher growth activities. It has constantly to innovate and upgrade to improve its productivity to compete against producers from beyond the city economy often within international markets (Storper, 2013). Tradeable activities have potentially positive roles to play in generating demand for more and better jobs and – as the international case study analysis demonstrates – have typically been the focus of policy targeting in cities (Trujillo and Parilla, 2016). By contrast, the non-tradeable sector is broadly lower value added, lower productivity and lower growth. It plays an important role, however, in supporting local economic activity, labour demand and household incomes (Bentham et al, 2013). The sector has also been the focus of efforts to improve productivity and pay levels especially in services such as social care, retail and leisure (Thompson et al, 2016; Green et al, 2017). Given their particular labour demands, the formulation of complementary demand-side policies
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needs to address the different dynamics, nature and inter-relations of tradeable and non-tradeable sectors in city economies. The distinction between tradeables and non-tradeables matters for policy-makers targeting sectors. Not all city economies are focused on innovation-rich and high value added tradeable activities. Relatively mundane and localised economic activities – such as food retailing, utilities and local banks – are essential to everyday life for both prosperous and less prosperous social groups (Johal and Williams, 2013). These ‘foundational’ economic activities are non-tradeable and largely sheltered from the uncertainty and volatility of international competition, making them important and valuable sectors, especially for weaker market cities (Bentham et al, 2013). Such economic activities provide opportunities for policies to include people and places otherwise excluded, but may only provide the potential for limited inclusive growth in cities without the presence of, and links to, other tradeable sectors in the city economy. In 2015, lowskilled workers in non-tradeable industries earned on average around 86 pence an hour less than those in tradeable industries (Lee and Clarke, 2017). Indeed, research illustrates that tradeables are positive for job creation in non-tradeable sectors (Moretti, 2011; Martin et al, 2016a). For inclusive growth, this distinction presents a dilemma for city policy-makers: growth in tradeables is generally the force behind city economic growth, yet many of the low-wage jobs which need upgrading are in the non-tradeable sector.
Agglomeration economies Central to understanding the dynamics of city growth and the demand and supply of labour are the external economies of agglomeration generated by the geographical concentration of economic activities in urban areas. External economies of agglomeration are location-specific spillovers that affect businesses that are geographically close to each other (Brakman et al, 2009). There are three kinds of external economies of agglomeration. First is the geographical concentration of specialised goods and service suppliers in a city economy. Localised networks of suppliers enable the matching of supply and demand, reduction of costs and provision of incentives for further specialisation. Spatial concentrations of similar businesses attract further such businesses to access specialised suppliers, for example in high growth innovation sectors (Moretti, 2012). Second are large and diverse labour markets that enable the matching of labour demand and supply. A wide and deep labour pool in the city economy provides abundant labour supply from which businesses can recruit specialised staff, matching people to vacancies and meeting labour demand. Labour is attracted by the availability of employment, progression opportunities among many employers and potential job opportunities for workers with specialised skills (Lee et al, 2014). A longstanding question for the geographies of labour markets is whether ‘jobs follow people’ or ‘people follow jobs’. The ‘jobs follow people’ view emphasises the role of amenities in generating city growth (Glaeser, 2011). Businesses are attracted by cities with pools of skilled labour and high levels of amenities and services (Glaeser et al, 2001). People move between places over time driven by their preferences for city amenities. Businesses seeking certain kinds of labour follow and match their locational preferences. Florida (2002) sees businesses being attracted by concentrations of people working in ‘creative class’ occupations, cultural amenities, and experiences. City policies adopting this ‘jobs follow people’ view take a supply-side approach and focus upon creating amenities and services to attract and embed high-skilled workers and, in turn, the kinds of businesses that demand such labour. This approach does not envisage any role for demand-side policy. The alternative ‘people follow jobs’ view sees people moving to job-rich cities with higher pay levels (Storper, 2013), and only relocating to places with higher levels of amenities and services when they can get suitable employment (Storper and Scott, 2009). Decisions about where to live and work are complex and shaped by inter-personal relationships, family obligations, migration streams and cultural preferences rather than just narrow considerations of amenities (Storper, 2013). Highly educated workers are attracted to cities with concentrations of innovation sectors because of the opportunities for employment, progression and movement among employers (Moretti, 2012). Low skilled workers are less geographically mobile compared with high-skilled workers and have fewer potential employment 19
opportunities (Lee et al,2014). Policies following the ‘people follow jobs’ view aim to expand and upgrade the economic base of cities and see a role for policy to create demand for more and better jobs for people within and beyond the city. Challenges for policy focus on labour immobility and people living in cities with low levels of productivity and a lack of high wage employment. Because the evidence from the EU and the US on whether ‘jobs follow people’ or ‘people follow jobs’ is mixed and inconclusive (Hoogstra et al, 2014), the policy implications for particular cities require careful consideration. The third external agglomeration economy is knowledge spillovers which are the voluntary transfer and involuntary leakage of ideas and information between producers. Being near to each other enables producers to communicate, share and learn with and from each other, increasing their productivity and underpinning further innovation (Storper, 2013). Localisation economies occur within sectors enabling the diffusion of specialised ideas and innovations about products, processes and markets (Brakman et al, 2009). Urbanisation economies occur within cities between sectors promoting cross-fertilisation and complementary learning and innovation (Jacobs, 1969). Knowledge spillovers are increased in cities with innovation-based economic activities and highly skilled workforces. Businesses in cities with highly educated workforces are faster to adopt new and improved innovations and technologies which improves their overall productivity (Moretti, 2012). Better educated workers are more creative and innovative, supporting the upgrading of economic activities and productivity growth through product and process innovations. The presence of high-skilled labour in large urban centres also shapes the demand for lowskilled workers in the same local area. Relatively affluent but time-limited high-skilled workers generate demand for labour intensive services such as catering, childcare and security (Mazzolari and Ragusa, 2013). The external economies of agglomeration in cities generate benefits. These include processes of sharing (eg joint use of large-scale infrastructure such as public transport systems), matching (eg local demand and supply between purchasers and sellers of goods and services, job creation through derived demand for labour connecting with supply) and learning (eg the rapid spread of information and knowledge among people and businesses) (Storper and Scott, 2016). Such benefits underpin the gravitational pull of people and businesses to geographical concentrations of economic activities in urban centres (Storper and Scott, 2016). Increased scale and density are said to intensify the positive economic benefits of urban agglomeration and higher productivity through the effects of increasing returns to scale even when controlling for business and worker composition (Glaeser, 2011). Such benefits of agglomeration can feed through to derived demand for labour, creating the potential for policies that support agglomeration to generate more and better jobs. Recent research, however, has questioned the benefits of urban agglomeration. This work has highlighted: the relatively modest effects of agglomeration on productivity with the doubling of city size associated with a 4–8% productivity increase (Martin et al, 2016a); strong growth among smaller and medium-sized rather than just larger cities (Dijkstra, 2013); and higher levels of income inequality and poverty in some larger cities (Keeley, 2015; Lee et al, 2014; Royuela et al, 2014). In addition, agglomeration generates diseconomies and costs by pushing up the price of land, labour and capital and can have negative effects including congestion, pollution, intellectual property copying, skilled staff poaching and costly long distance commuting (Brakman et al, 2009). The benefits of agglomeration underpin the urban concentration of economic activity up to the point at which they are outweighed by the costs. In theory, the economic incentives shift thereafter towards geographical dispersal out of urban centres. The diseconomies of agglomeration can constrain and stifle labour demand, creating opportunities for demand-side policy to sustain and divert demand for labour to a wider set of social groups and/or geographical areas beyond large urban centres, contributing to inclusive growth aims. Agglomeration economies underpin the view that cities are key generators of economic growth and higher productivity, as they help draw some forms of economic activity into larger cities, so leading to inequality between places (Glaeser, 2011; Storper, 2013). The basic logic of external economies of agglomeration underpins different approaches to understanding the benefits of geographical proximity to economic activity such as ‘clusters’ (Porter, 1996), ‘districts’ and ‘networks’ (Herrigel, 2010), ‘ecosystems’ (Best, 2014) and ‘industrial commons’ (Pisano and Shih, 2012). Processes of agglomeration play out differently in different economic sectors and cities and, with industries based on specialist knowledge
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benefiting particularly, these processes have led to a divergence in city economic performance in the UK and beyond (Martin et al, 2016b; Storper et al, 2015). Innovation sectors are concentrated in relatively few urban centres, generating disparities between cities with differing economic structures and performance (Martin et al, 2016b; Pike et al, 2016a). Stronger city economies are increasingly benefitting more and more from economic change while the weaker city economies are falling behind. Research in the US has demonstrated how higher growth innovation sector businesses (eg IT, life sciences, finance and business services and some advanced manufacturing) are attracted towards cities with an abundance of highly qualified and skilled workers (such as engineers and software designers) and supporting institutions (such as. further education colleges and universities) which produce these kinds of workers (Moretti, 2012). By contrast, US cities with limited numbers of highly qualified workers and many low-skilled workers have struggled and experienced declines in wages and incomes (Moretti, 2012). Recent city economic policy has focused on creating and sustaining agglomeration economies, especially through interventions on the supply side (see, for example, Cheshire et al, 2014; RSA City Growth Commission, 2014; World Bank, 2009). Redistributive regional policies aiming to disperse economic activities to less prosperous cities and regions and reduce inter-regional disparities have been criticised for undermining the productivity and growth benefits of agglomeration, thereby lowering overall national incomes and living standards (Martin, 2008). However, recent research has questioned the costs and effectiveness of policies supporting further geographical concentration and growth especially in capital cities (Martin et al, 2016c), and has highlighted the important contributions of second tier cities (Dijkstra, 2013, Parkinson, 2013). Designing demand-side policies for inclusive growth needs better understanding of the dynamics and different forms of agglomeration in city economies for policy mixes appropriate to the increasingly divergent paths of city development. Cities enjoying the benefits of agglomeration will need different demand-side policies for inclusive growth from those struggling with its costs. For example, such policies might help to match increasing labour demand with supply among targeted social groups and/or places in fast growing cities, whereas seeking to connect potentially unfulfilled economic opportunities and labour demand in larger cities with excess labour supply is more appropriate to the needs of adjacent smaller and medium-sized cities. Better understanding of the demand-side in city economies and the derived demand for labour helps to identify key relationships and gaps in designing rationales for policy intervention.
Demand-side gaps in city economies and rationales for policy intervention The inclusive growth agenda is challenging the conventional ideas of the trade-off between efficiency (growth) and equity (fairness) and the emphasis on fixing market failures as the sole basis for policy intervention (Pike et al, 2016a). In viewing efficiency and equity as complements rather than substitutes, policy intervention can be based on seeking to achieve both growth and fairness. Informed by understanding city economies and the role of the derived demand for labour, this justification underpins the following six demand-side rationales for inclusive growth policies (Table 5).
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Table 5: Rationales for demand-side policy interventions Rationale Addressing demand gaps – preventing short-term demand gaps leading to longer-term structural problems Enabling demand linkages – building complementary connections in the city economy Preventing information and co-ordination gaps – where incomplete information between actors prevents appropriate decisions being made Closing innovation gaps – ensuring appropriate investments in innovation are made by economic actors, stimulating demand Avoiding the low skills trap – where the demand and supply of skills are co-determined, and the skills needs and provision of employers and employees are upgraded Building resilience and adaptability – constructing the capacity to anticipate, withstand and bounce back from and improve adaptability to disruptive economic change Source: Authors’ research
Rediscovering the demand side in understandings of city economies and labour markets highlights several gaps and rationales for policy intervention. Demand gaps are a shortfall of demand for the goods and services produced within the city economy that feeds through into reduced levels of economic activity and a lack of derived demand for labour. Demand deficiencies or gaps in the derived demand for labour can be caused by short-term and cyclical factors, including economic downturns or recessions, weakened consumer confidence and spending, and reductions in goods and services production by businesses. Such demand deficiency can be remedied by an upturn in the economic cycle and/or government stimulus and policies to kick-start the economy and stimulate an increase in the derived demand for labour. Demand deficiencies in the wider city economy and labour market can also reflect longer term structural changes that change the level and nature of labour demand. Shifts from manufacturing to service based activities, globalisation and intensified competition, and technological changes such as digitalisation have meant city labour markets have experienced hollowing-out and reductions in intermediate and mid-level jobs and the rise in precarious forms of work and employment (UKCES, 2014). Structural change can generate persistent deficiencies in labour demand, particularly if the city economy and organisations and people on the demand and supply sides of the labour market struggle to adapt to economic change (Martin et al, 2016a). Demand gaps within the wider city economy are evident in low levels of economic activity, low relative prices, high levels of unused capacity and factor supplies, and undermined confidence in economic prospects. Gaps in the derived demand for labour are manifest in a shortfall in the demand for labour causing inactivity, unemployment and population loss. The potential for policies to shape the level and nature of labour demand for more and better jobs is relatively higher in conditions of growth. Increasing derived demand for labour can be encouraged by policies to create more and better jobs, for example through incentives to encourage and help employers create, recruit and retain skilled labour in tight labour markets. In conditions of decline, policy interventions are needed to encourage growth and demand for labour, for example through increasing the number of employers in a city by supporting entrepreneurship and business start-ups, small and medium enterprise (SME) expansion and inward investment attraction. While other contributory factors shape the predicament of ‘weak market’ cities (Power et al, 2010), such as low skills and small and uncompetitive private sectors, lack of demand for labour is a major and persistent problem. Addressing derived demand gaps is the first rationale for demand-side policy interventions for inclusive growth.
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Rationale for policy intervention 1 Addressing demand gaps by generating demand to stimulate or kick-start the city economy and stimulate increases in the derived demand for labour. Job generation can be created by direct public sector expenditure and indirectly by public sector stimulation of the wider economy, and policies to encourage and support increased demand for labour in the private, public and third sectors. The cause, extent and nature of the gap in the derived demand for labour needs to be understood and incorporated into the rationale for the policy intervention. The policy intervention(s) can then be tailored to three main situations of deficient labour demand: addressing short-term cyclical demand shocks caused by an economic downturn and recession; coping with medium to longer term structural changes and adaptation; and dealing with the short-term or persistent decline of particular large and/or key sectors in the city economy. For inclusive growth, the types of jobs created are just as important as the number of jobs. Engaging private sector employers is critical. Polices need to be based upon clear and strong economic arguments and evidence for creating new employment opportunities, raising productivity and developing upgraded business models to enable the payment of higher wages, and enhancement of job quality and employment terms and conditions (JRF and IGAU, 2017). Designing policy for this rationale needs to address issues around the causes of poor labour demand, the potential relative expense, the relatively small scale of the financial resources of public sector institutions compared with the size of their city economies, and the leakiness of city economies where expenditure and economic multipliers extend beyond city and/or city region boundaries and may not always reach the intended beneficiaries (Gordon, 2002). Demand linkages are the complementary economic connections between producers in a city economy, based upon their input and output relationships. Demand linkages work through multiplier effects whereby business income from sales of goods and services and household income from wages for work generate further demand as this income is used to buy further goods and services, either as direct spending or through supply chains. Multiplier effects are direct (increases in output, employment and income), indirect (increased business demand for goods and services from other firms through supply chains) and induced (further increased demand stimulated by additional household expenditure). Demand linkages and multipliers within the wider city economy feed through into derived demand for labour, generating different levels and types of jobs. Recent work on multipliers has found sectoral and geographical variation. Van Dijk (2015), for example, estimated that each new tradeable job in the US produced between 1.6 and 1.7 new non-tradeable jobs with most of this effect due to skilled tradeable jobs. Evidence for the UK suggests much lower multipliers with high technology jobs producing a multiplier of between 0.6 and 1.1 for non-tradeables (Lee and Clarke, 2017). Multipliers can be positive or negative, with the initial growth in one sector having built-in amplifying effects. With positive multipliers, city growth is a self-perpetuating virtuous circle. Producers boost each other’s demand for further goods and services and derived demand for labour, thereby generating increasing returns to scale, promoting cumulative growth and creating further employment opportunities (Chang et al, 2013; Rodrik, 2004). With reduced levels of expenditure and investment, multipliers can be negative in a self-reinforcing vicious circle of contraction and decline. Multipliers can also be negative when they generate displacement effects, for example when growth in one sector in a city economy causes contraction in another sector. Even the generation of positive multiplier effects may not always have unambiguously positive effects on the city economy and the derived demand for labour. Where there is an increase in jobs in a city economy, this may lead to higher levels of in-commuting and/or inmigration rather than local uptake of jobs. The positive benefits of the expansion of labour demand are therefore evident but in a different and extended geographical setting, for example where city centres provide employment hubs for wider city regions. Additional investment and growth increases demand for labour and land, pushing up prices and costs and potentially squeezing out other local producers. Enabling demand linkages provides the second rationale for demand-side intervention.
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Rationale for policy intervention 2 Enabling demand linkages between businesses to boost each other’s demand, generate increasing returns to scale, promote cumulative growth and create further employment opportunities. The aim is to generate positive economic multipliers. Policies can be targeted at selected tradeable (export) and nontradeable (non-export) sectors given their different levels and types of derived demand for employment and potential multipliers. Focusing on demand linkages builds on external economies of agglomeration in promoting the concentration and growth of specialised goods and services, large and diverse labour markets and knowledge spillovers. Recognising the limits of public sector interventions, policies are likely to be effective when complementary and working with the grain of economic change (Rodrik, 2004), and supporting linkages and diversification into related sectors (Neffke and Henning, 2013). For this rationale, several issues need to be considered including: whether public institutions (especially at the city level) have sufficient information to identify and select industries likely to help the local economy grow, and the risks of making mistakes and wasting public resources; vested producer interests seeking to capture government support and engage in ‘rent seeking’ (giving them economic gain without any benefits to society); and the risk that interventions to foster stronger links between and within key sectors may promote over-specialisation and render city economies vulnerable to disruptive change. City labour markets typically suffer from mismatches between their demand and supply sides caused by information and co-ordination gaps. Information gaps arise because the private and public sectors and people in cities commonly have incomplete and/or imperfect information about current and potential economic and employment opportunities and their cost and benefit structures (Rodrik, 2004). This means that markets fail to work efficiently to allocate resources and the private and public sectors and people are unaware of market transactions that can generate net benefits above the costs involved (Bartik, 1990). Since organisational and individual decision-making relies upon partial information, it can lead to the over- or under- supply and over- or under-demand for key factors of production such as labour. Economic potential then goes unexploited and job generation opportunities are missed. Closely related to information gaps, co-ordination gaps are caused by the lack of alignment between economic activities in the private and public sectors in city economies. City growth benefits from the coordination of the economic decision-making of multiple private and public actors. Linkage of their upstream (eg inputs and related infrastructures) and downstream (eg outputs and related infrastructures) investments underpins city growth paths (Rodrik, 2004). For example, growth benefits are generated by connecting the derived labour demand of a rapidly expanding economic activity to provision of appropriately skilled labour. Failure to see or make the connections leads to missed opportunities to match labour demand with supply for more and better job creation and inhibits sectoral growth. Policies are therefore needed to provide the missing co-ordination between the private and public sectors and connect and sequence demand and supply in the city labour market. Preventing information and coordination gaps provides the third rationale for demand-side intervention. Rationale for policy intervention 3 Preventing information and co-ordination gaps. Filling information gaps is based on uncovering and sharing information among the public and private sectors. This rationale needs to ensure the information provided is appropriate and resolves rather than worsens any information gaps, avoiding opportunistic behaviour by private and public sector actors using information in ways that undermine inclusive growth aims. Providing the missing co-ordination enables the connection and alignment of economic decisionmaking between many private and public actors in a city economy. The size of the city can provide a geographical and institutional focus for such co-ordination and information sharing. Policy can be understood as a discovery process in which the public and private sectors work strategically to identify and address opportunities, benefits and costs for city growth and employment creation (Rodrik, 2008). This requires public and private dialogue and design of appropriate institutions to support public-private partnerships aimed at stimulating specific economic activities and promoting structural change and adaptation. Achieving and sustaining this is critical to addressing the needs of the public and private sectors in the city economy and helping businesses improve productivity, growth, and employment creation and quality.
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Particular forms of information and co-ordination gaps are evident in new and emergent innovation sector activities which face imperfect information, risk and uncertainty, leading to under-investments in innovation and knowledge creation by businesses and reduced derived demand for labour. Costs, returns on investment and the timescales for any benefits are often unknown, creating innovation gaps in city economies. Such innovation gaps are also evident among lower value added, productivity and wage sectors. Addressing such gaps seeks to enhance productivity through upgrading and improving management, innovation, job redesign, greater worker autonomy, job rotation, multi-skilling and progression routes for workers whose skills are currently under-used (Thompson et al, 2016; JRF and IGAU 2017; Zeynep, 2014). While much innovation policy has focused on the regional scale (Morgan 2016), there is considerable scope for this rationale of closing innovation gaps to inform policies to stimulate labour demand for more and better jobs at city and city-regional levels (Markusen 2015). Rationale for policy intervention 4 Closing innovation gaps by providing information and reducing risk and uncertainty for private actors so they can invest in new knowledge and technology creation and application with the intended additional benefits of increasing derived labour demand (Rodrik, 2004). Public sector institutions can lead the way in identifying and shaping new technological opportunities and demand for innovations, giving confidence to private actors, and encouraging them to invest to create and stimulate rather than simply fixing markets (Mazzucato, 2015). Policies seeking to close innovation gaps aim to reinforce the central role of innovation and knowledge spillovers in productivity improvement, growth and employment creation (Storper, 2013). More specific initiatives have focused on investment and support for public research and development, incentives and subsidies for the private sector especially focused on ‘blue skies’, ‘far from market’ ideas and potentially game-changing general purpose technologies (Mazzucato, 2013), and public procurement (Elder and Georghiou, 2007). Issues to address include whether public institutions have the information or knowledge to effectively select sectors with long-term growth potential; the capacity of private sector actors to identify and develop innovations; and whether the public sector can be influenced by vested producer interests to provide support for inappropriate sectors, echoing longstanding criticisms of industrial policy for ‘picking winners’ (ie industries already likely to succeed) (Rodrik, 2004). Mismatches between labour demand and supply in city economies can result in a low skills trap when low demand for skills is matched by low supply of skills (Green ,2016). This situation is characterised by a reliance upon low value added, low productivity and low wage economic activities which generate derived demand for lower skilled labour. Low levels of educational attainment and skills and participation in training on the supply side are reinforced by the absence of higher wage jobs locally and limited career progression routes on the demand side, leading to the out-migration of more skilled and younger workers (Green, 2016). The lack of demand for skilled and well-paid labour generates wider problems of inequality and in-work poverty (Wilson et al, 2003). This concern has been heightened by the recent growth of agency work, ‘false’ self-employment, the gig economy and zero-hours contracts (JRF and IGAU, 2017). Avoiding a low skills trap is the fifth rationale for demand side intervention.
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Rationale for policy intervention 5 Avoiding a low skills trap in a city economy requires complementary demand- and supply-side policies. The logic for breaking the trap is focused on increasing the demand for, and effective use of, skills (Green, 2016). For existing employers, this needs policies to help them upgrade their business strategies and the basis on which they compete (Ashton and Sung, 2011). As demand for labour and skills is derived, upgrading business strategies into higher value added, higher productivity and higher wage markets increases the levels of employee skills needed and their effective use (Green, 2016). To attract new employers, policy needs to be focused on higher value added activities and sectors. The aim is to create higher skill and higher wage jobs and positive multipliers, improve skills and training provision, and raise employer and employee aspirations. Given the potential trade-offs between productivity improvement and job creation, upgrading and job enhancement initiatives must be balanced with inclusion and employment generation (OECD, 2016). Policies based on this rationale need to address the challenge of a lack of ambition and/or capacity to upgrade from businesses pursuing low road (based on cost control and price competition) competitive strategies. The adaptation of such businesses to high road strategies (involving quality and innovation) can lead to short-term job loss and the exclusion of lower skilled workers from local job opportunities. A final issue for city economies and the more and better jobs agenda is how the demand and supply sides of the economy deal with change over time. Resilience and adaptability refer to the geographically differentiated capacity for city economies to withstand, adapt to and anticipate disruptive economic, social and environmental change (Pike et al, 2017). City economies have become more vulnerable to external shocks because of the increased interdependence between places caused by globalisation. Cities are more resilient when they have higher levels of adaptive capacity. Adaptive capacity refers to the abilities of people and institutions to promote change and economic renewal in response to disruptive changes. Resilience and adaptability are important in sustaining derived demand for labour in response to disruptive change. Cities with populations with higher skill levels are more resilient and adaptable to economic change and able to create new businesses in growth sectors (Lee et al,2014). Cities with stronger performance in new firm creation are not only associated with faster long-term growth (Glaeser et al, 2012) but are also more diversified, less dependent on specific industries and more resilient to disruptive change (Lee et al, 2014). Adaptability to economic change is increasingly seen as central to city economic development and policy (Martin et al, 2016a). Building resilience and adaptability is the sixth rationale for demand-side intervention. Rationale for policy intervention 6 Building the resilience and adaptability of city economies to generate and sustain labour demand for more and better jobs. Policies based on this logic include building research and intelligence capacity, building university-industry links, generating and attracting higher skilled people, supporting demand for new business start-up and spin-offs, localising economic spending and investment, and supporting sectoral diversification into related economic specialisms (Martin and Sunley, 2015; Bentham et al, 2013). For cities undergoing structural change, policies can involve retaining capacity and safeguarding employment amid disruptive change in the short term, alongside encouraging longer term adaptation and shifting demands for different levels and kinds of labour. This policy rationale needs to address claims that emphasise the limited capacity for public policy to influence long-term economic change and the difficulties and uncertainties involved in planning, anticipating and responding to potential disruptive changes. Building on understandings of city economies and the rediscovered role of demand, six clear rationales for inclusive growth policies have been identified: addressing demand gaps; enabling demand linkages; preventing information and co-ordination gaps; closing innovation gaps; avoiding the low skills trap; and building resilience and adaptability. Together the rationales provide the platform for developing the definition and types of demand-side policies for inclusive growth in cities.
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The definition and types of demand-side policies for inclusive growth in cities Drawing on the rediscovered demand side, understandings of city economies and rationales for policy intervention, the working definition of demand-side policies for inclusive growth in cities is: Policies that seek to raise the level and enhance the quality of demand for labour in a city economy, increase labour demand for specific groups within the city, and/or improve the quality of jobs. This working definition is informed by several factors. The first is the emphasis on policy interventions to influence the level and nature of the derived demand for labour in the city economy. The aim is to establish and strengthen complementary and supportive links between existing supply-side and new demand-side policies, for example co-ordinating the provision of new business sites and premises and skilled labour explicitly matched to the labour demands of growing sectors. The focus on the city or city region area draws upon international evidence supporting policy interventions at the level of functional economic areas while recognising their wider inter-relations (see, for example, Ahrend et al, 2014; Cheshire and Gordon,1998; Pike et al, 2016b; RSA City Growth Commission, 2014). Second, rather than solely focusing on the quantitative level of growth and number of jobs generated in conventional city growth policies, the definition emphasises the quality of growth and the type and distribution of jobs created, addressing the question of who gets the jobs and from where (Pike et al, 2007). The quality of jobs can be assessed by the equalities principles used in recruitment, terms and conditions of employment, relative wage levels, opportunities for career progression, and trade union recognition (OECD, 2014; Osterman, 2008). Third, the definition seeks to include and move beyond the traditional focus on employers and occupations to broaden the understanding and potential for complementary demand-side policies to encompass business support, demand-led skills programmes, city fiscal policy, infrastructure, and economic planning and strategy (Table 6). With interventions, the aim is to better connect and coordinate the conventional supply-side aspects of the policies – for example business support and provision of business premises – with a greater appreciation of the importance and complementarity of their links to the demand-side. The aims of inclusive growth can be better addressed by focusing on a wider range of policies, greater sensitivity to the demand and supply sides of the labour market, and the design of an appropriate policy mix tailored to city circumstances able to contribute to more and better job creation in cities. The policy types are defined in Table 6 and illustrated by examples of the different rationales and specific policy interventions. It is important to recognise that each policy type is typically informed by several rationales. The policies can be targeted at different types of business: existing businesses; new enterprises; and inward investors from outside the city economy. Interventions can also be targeted at specific industries, occupations and geographical areas of the city. Industry or sector focused initiatives aim to shape the industrial and sectoral structure of the city economy, typically by supporting and attracting industries with strong growth potential to generate derived labour demand for more and better jobs. Occupational targeting seeks to attract growing and future-oriented occupations, and upgrade job quality in existing occupations by improving pay levels and conditions. Finally, area targeting involves a focus on identified areas such as districts or neighbourhoods within cities. These are typically centrally located ones with high growth potential or disadvantaged areas in need of regeneration.
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Table 6: Types of complementary demand-side policies in cities Type of policy Business support
Demand-side definitions Support for businesses to expand and increase labour demand and job quality
Demand-led skills programmes
Identification of demand gaps and skills needs of employers and alignment of training and education provision with these demand gaps and needs
City fiscal policy
Use of the tax and expenditure powers of city governments to influence demand within the city economy and derived labour demand
Infrastructure investment
Provision of infrastructure to support business growth, attract new business and increase labour demand
Economic planning and strategy
Plans and strategies for economic development that aim to shape the level and nature of labour demand
Examples of interventions Subsidised loans and grants for upgrading business models and strategies, exporting and innovation; assistance with sites and premises; enterprise zones; business incubators; science and technology parks Career ladder initiatives; subsidised employment schemes; local hire/first source hiring ordinances; entrepreneurship training through occupational associations Tax breaks and incentives; transfer payments (eg shortterm compensation programmes, worker subsidies, hiring credits); local procurement and content clauses; tax increment financing programmes; creation of markets for new businesses through government procurement mandates Connecting labour demand and supply to the provision of transport infrastructure including land redevelopment and improvement, energy and electricity schemes, information and telecommunications provision City economic development strategies; planning policy; city marketing campaigns; enhancement of amenities and services
Source: Authors’ research
The rediscovery of the demand side of city economies and the derived demand for labour are receiving growing attention internationally. Tradeable and non-tradeable sectors, agglomeration, and whether jobs follow people or people follow jobs, are all important to the level and nature of labour demand. Addressing both growth and fairness, key relationships underpin clear rationales for policy intervention on the demand side: addressing demand gaps; enabling demand linkages; preventing information and coordination gaps; closing innovation gaps; avoiding the low skills trap; and building resilience and adaptability. Demand-side policies for inclusive growth aim to raise the level and enhance the quality of aggregate demand for labour in a city economy, increase labour demand for specific groups within the city, and/or improve the quality of jobs. Fostering complementary and supportive links between supplyand demand-side policies is critical, and greater recognition should be given to demand-side issues when formulating policy. As the demand and supply sides are closely linked, policies need to address both with greater attention to the co-ordinating and timing of complementary demand-side policies alongside 28
supply-side measures. Demand-side policies are often needed to unlock particular constraints to economic growth and to stimulate labour demand which can then be better matched with labour supply in cities. As outlined above, contemporary forms of demand-side policy in cities are distinct from those which were criticised in previous policy eras as expensive and wasteful ‘make work’ schemes, subsidising ‘lame duck’ industries and ‘picking winners’ (Chang et al, 2013). Increased recognition of the important role of complementary, sequenced and supportive demand-side policies for inclusive growth is becoming evident in cities internationally. The next section examines what can be learnt from their experiences and adapted for the UK context.
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4 Learning from international experience: case studies of demand-side initiatives in cities Policy agendas have only recently begun to focus on the demand side, and there are relatively few examples of ‘pure’ demand-side policies for inclusive growth at city level. This section presents case studies of policy initiatives which have a strong demand-side element. Acknowledging the important connection and relationship between demand and supply-side policies, the case studies identify demandside elements and measures that are linked and co-ordinated with other city economic development objectives and associated supply-side components. The aim is to highlight and assess these demand-side elements and their connections to inclusive growth to draw out lessons for UK cities. The case study research is based on secondary sources and interviews with experts and policy-makers. This involved two stages: case study scoping and identification; and empirical data collection and analysis of the selected case studies. The scoping stage extensively reviewed international examples of demandside policies for inclusive growth at city level, informed by recent policy-related research, organisational searches for potentially innovative initiatives, and the contacts and knowledge of the research team. A long-list of 12 potential case studies was finalised down to 6. The second stage of intensive case study research collated and analysed secondary documentation including published research, strategy documents, reports, organisational websites and city economic statistics, and carried out interviews with selected experts and policy-makers from local (city) government, states and provinces/regions, business organisations, trade unions and civic groups. The case study selection focused on developed economies to ensure that levels of economic and social development were broadly comparable to the UK. The focus on international examples reflects the limited extent of devolution to UK cities and the need to learn from cities with greater devolved powers. While powers are often devolved to states or regional-level governance institutions, cities still exercise a wider range of powers and responsibilities than in the UK, often channelled through directly elected mayors. The analysis does not treat cities as isolated units but incorporates their relationships with regional and national governments where relevant. The six international case studies present novel and innovative demand-side approaches to inclusive growth implemented over the past decade. Each case study follows a common framework, informed by recent research in JRF’s Cities, Growth and Poverty Programme (Green et al, 2017; Howlett et al, 2017). Rather than the conventional policy cycle model of discrete stages, as represented by the UK Treasury’s Rationale, Objectives, Appraisal, Monitoring, Evaluation and Feedback (ROAMEF) framework (HM Treasury, 2003), this modified approach understands policy-making as an unfolding process shaped by participating actors and characterised by blurring and overlap between its stages (Figure 5). Activities such as agenda setting, policy formulation, decision-making and implementation are understood as ‘multiple streams’ or strands rather than as discrete stages (Howlett et al, 2017). This approach is better suited to the contextual and grounded nature of place based initiatives in cities than the more abstract idea of linear policy cycles. Informed by Green et al’s (2017) study of city-level inclusive growth policies, the analysis focuses on the following themes (see Figure 5): •
geographical background and context
•
demand-side policy rationales
•
policy types and strategies
•
industry targeting
•
governance and leadership
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•
design, implementation and impact
•
challenges and limitations.
The case studies are followed by a discussion of the broad lessons for UK cities.
Figure 5: A ‘multiple streams’ framework of policy analysis
Source: Authors’ research
Geographical background and context The six case studies cover different levels of devolution and national circumstances. Three are drawn from the US and its recent experience of crisis and uneven recovery; two from western European economies severely affected by the 2008 economic crisis and subsequent austerity measures; and one from Australia which has been experiencing slowing growth and the decline of its manufacturing sector. The cases are: an inclusive area-based innovation initiative (Pittsburgh); a manufacturing revitalisation project (Chicago); a sectorally-focused occupational upgrading scheme (San Antonio); an IT-based inward investment programme (Limerick); an infrastructure investment project (Melbourne); and a green economy initiative (Albacete) (see Table 7).
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Table 7: Case studies of demand-side policies for inclusive growth in cities Title
Timescale
Pittsburgh Central Keystone Innovation Zone (PCKIZ) (US)
2007 –
Chicagoland Manufacturing Renaissance Council (US)
2005 –
Demand-led Workforce Development in San Antonio (US)
Limerick for IT (Ireland)
Demand-side rationale(s) Innovation gaps, demand linkages, information and coordination gaps, low skills trap
Policy type
Aims
Key programmes
Key actors
Business support and city fiscal policy (tax credits)
Inclusive innovation by connecting disadvantaged communities to high-tech economy
State government, key anchor institutions, county council, foundations and private companies
Demand linkages, information and coordination gaps, low skills trap
Demand-led skills with industry targeting
1993 –
Demand linkages, information and coordination gaps, low skills trap
Demand-led skills and business support with industry and occupational targeting
Creating jobs and fostering competitive advantage in advanced manufacturing; demand driven education and training to support community development and poverty reduction Supporting target industries, workforce development and poverty reduction
Tax credit initiative (PCKIZ), internships, community based grant competition and Kiva Pittsburgh (small business crowdfunding scheme) The Austin Career and College Academy (ACCA) and Manufacturing Connect
Project QUEST and San Antonio Works
2014 –
Innovation gaps, information and coordination gaps
Demand-led skills, business support and economic planning and strategy.
Social movements, employers , industrial associations and chambers of commerce, state government, workers, colleges Universities, city and county councils, industrial development agency, employers
Securing of further inward investment
Identification of critical skills and provision of courses by local higher education institution
Labour and community groups, city, industry associations
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Economic Recovery through Green Technologies in Albacete (Spain)
2008 –
Demand gaps, innovation gaps, information and coordination gaps
Economic planning and strategy with sectoral targeting
Stimulation of construction sector and economy, new business creation and reduction of unemployment
Re-fitting public buildings with energy efficiency measures
Infrastructure Investment and Local Content Requirements in Melbourne (Australia)
2014 –
Demand gaps, demand linkages
Infrastructure investment and city fiscal policy (procurement)
Job creation, employment of disadvantaged workers, local skills development and supporting local businesses
The Victorian Industry Participation Policy (VIPP), the Melbourne Metro Tunnel Project (MTP), the Major Project Skills Guarantee (MPSG)
City council and business, business intermediaries, training and education providers, research establishments and trade unions State government, city council
Source: Authors’ research
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The case studies present a range of local economic circumstances and trajectories. These include rapid and sustained economic growth in the case of San Antonio, where GDP growth was 13.8% between 2009 and 2012, ranking 19th out of all OECD metropolitan areas (Green et al, 2017). By contrast, the other cities have experienced sustained de-industrialisation and the loss of manufacturing jobs. They include the classic declining industrial city of Pittsburgh which lost just over half its population between 1950 and 2010 (Beauregard, 2012), although this loss slowed markedly after 1990 (Allegheny Institute for Public Policy, 2016). The larger cities of Chicago and Melbourne are traditional manufacturing hubs which have undergone de-industrialisation, although at different times and rates. Manufacturing employment in Chicago fell from 668,000 in 1947 to 277,000 in 1982, with its metropolitan area losing 185,000 jobs between 2001 and 2011 (Clavel and Giloth, 2015; Wial, 2013). Melbourne’s experience of de-industrialisation is more recent with manufacturing employment in the state of Victoria declining by 11.9% since 2010 and job losses totalling 36,400 (Department of Employment, 2016). Large-scale job losses associated with factory closures in the automotive sector are generating pressures for policy intervention. Albacete and Limerick share a similar economic trajectory of rapid growth before the crisis of 2008 followed by severe contraction and subsequent stagnation, reflecting the evolution of their national economies. Limerick has been slower to recover than other parts of Ireland with the current rate of economic inactivity (almost 24%) higher than the national average (19%) (Central Statistics Office of Ireland, 2011). The closure and relocation of Dell’s manufacturing facility to Poland, announced in 2009, was a particularly serious blow, with the area losing 1,900 direct jobs and an estimated 10,000 in the supply chain. By 2011, almost 29% of the workforce in Albacete were unemployed, rising to almost 50% for young people. Unlike previous periods when it was concentrated among unskilled and migrant workers, unemployment now affects people from all backgrounds and education levels. The experiences of economic restructuring and change in the cities have created particular problems and challenges for policy-makers, generating pressures for intervention through place based strategies and initiatives. In the case study cities, such problems include job losses in key sectors (Albacete, Chicago, Limerick, Melbourne), and pressures to extend the benefits of growth to under-served social groups and areas (Pittsburgh, San Antonio) (see Box 1). Specific policy interventions are often buttressed by broader place based concerns about fostering local economic growth and competitiveness in a turbulent national and international economic environment, coupled with increased concerns about the promotion of more socially and spatially inclusive forms of growth. This approach supports a strong demand-side focus on local economic growth and expansion to enhance the number, quality and distribution of jobs, articulating the demand-side rationales identified earlier (Table 7).
Box 1: The Pittsburgh Central Keystone Innovation Zone (PCKIZ) and the Hill District, Central Pittsburgh While Pittsburgh has gained international renown as a post-industrial ‘turnaround’ city based on its education and medicine (‘eds and meds’) strategy, this economic recovery has been highly unequal in nature, reflected in rising inequality, racial disparities and poor job quality (Treuhaft, 2016). The city remains highly segregated, with Pittsburgh’s black/white poverty gap among the widest in the US and around 30% of the workforce reliant upon poverty-wage jobs (Rhodes-Conway et al, 2016). As such, not all Pittsburgh residents or communities have benefitted from the new economy emergent in recent decades. The Hill District is one such disadvantaged inner city community left behind by the city’s reinvention. It was formerly a vibrant community, but its decline originates in the late 1960s when a hockey stadium was built, displacing 10,000 residents and leaving the remaining residents disconnected from the downtown economy. Hill is a predominantly African-American community and contained a large Jewish community in the past. The district is still dealing with the economic aftermath of displacement from this period. Along with the neighbouring Uptown area, Hill is the focus of the Pittsburgh Central Keystone Innovation Zone (PCKIZ) initiative. Despite their location in the corridor between the major local employment centres in Downtown and Oakland, both communities are disconnected from recent job growth. Reconnecting residents to the local high-tech growth is the purpose of the PCKIZ initiative.
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Demand-side rationales All the case study initiatives can be related to multiple demand-side rationales (Table 7), adapting these to local conditions and circumstances in distinctive ways. These broader rationales are often implicit in the framing of initiatives rather than being subject to extensive deliberation. Several of the case study initiatives address demand gaps and deficiencies emanating from structural and cyclical changes in the city economies, including reduced demand for manufacturing labour in Melbourne resulting from deindustrialisation, and in Albacete’s construction sector following the collapse of the building boom. The PCKIZ programme addresses demand gaps affecting firms and workers in its designated zone by allowing firms to sell tax credits awarded through the programme (Box 2), enabling them to raise capital to invest in new staff and equipment. Four of the six case studies tackle demand linkages, typically by attempting to strengthen the relationships between firms and workers in key sectors. In addition to efforts to foster closer links between firms in sectors such as manufacturing (Box 2), focusing on demand linkages involves working with employers to identify ‘in demand’ skills or skills gaps to which labour supply can then be matched through sectoral employment initiatives. Most of the case study initiatives address information and co-ordination gaps, particularly by trying to create stronger alignment between the public and private sectors and the sharing of information and coordination of activities. This approach is evident in five of the six cases, involving initiatives such as Manufacturing Connect in Chicago (Box 2), the formation of an IT skills partnership in Limerick, and the establishment of the time-limited Talent Pipeline Taskforce in San Antonio. For example, Limerick for IT brought together employers, higher education institutions and public bodies to address critical skills demand gaps. The objective was to secure agreement for participation from locally based multinational corporations, thereby matching emerging jobs demand and skills supply (Table 7). Innovation gaps are an important focus in the PCKIZ and Albacete green economy initiatives. Urban Innovation 21 is the partnership organisation responsible for managing the PCKIZ and associated programmes. Urban Innovation 21 is one of the first US-based organisations to work under the ‘inclusive innovation’ concept, seeking to connect residents of the disadvantaged areas it serves with the city’s growing high-tech economy (Table 7). In the Albacete green economy initiative, the city fosters innovation though the refitting of public buildings with energy efficiency measures (Box 4), focusing on stimulating the construction sector rather than the high-tech clusters that are typically the concern of local innovation policies. Overcoming low skills traps is an explicit rationale for the PCKIZ and CMRC initiatives in seeking to promote high-skilled employment for the residents of Central Pittsburgh and the West Side of Chicago (Box 2). Workforce development initiatives in San Antonio are underpinned by the need to avoid a low skills trap through complementary demand- and supply-side measures that identify skills gaps in target industries and train residents in the skills needed for the opportunities, and give help to access them (Table 7). While resilience is not an explicit rationale for any of the initiatives, Limerick and San Antonio are concerned with broader questions of adaptability, ensuring that their economies are responsive to structural economic change. The approach is pursued though measures to align employment and labour market policies with the changing demands and needs of employers in target industries.
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Box 2: Demand-side rationales for the Chicagoland Manufacturing Renaissance Council The Chicagoland Manufacturing Renaissance Council (CMRC) is an association of representatives from the private and public sectors with a vested interest in advanced manufacturing. It was established in 2005 on the initiative of Manufacturing Renaissance, a not-for-profit advocacy group for manufacturing industry, with the City of Chicago, the Chicago Federation of Labor, Cook County, prominent manufacturing companies, and the South Suburban Managers and Mayors Association. There are three demand-side rationales for CMRC. First, it aims to strengthen demand linkages and multipliers between manufacturers in Chicago. By so doing, it promotes labour pooling, increasing returns to scale and productivity growth through sharing technologies and good practice, and creates further employment opportunities. Second, it targets co-ordination and information gaps resulting from inadequate communication and co-ordination between business and government. Bringing together the public and private sectors, CMRC champions the provision of infrastructure and investments from government to benefit advanced manufacturing industry. This has been delivered through education initiatives such as the Austin Career and College Academy (ACCA), a secondary education institution specialising in manufacturing, and the Manufacturing Connect programme which facilitates partnerships between secondary education and training institutions and manufacturing businesses. Third, through promoting advanced manufacturing and creating high value added, high skill, high wage jobs, CMRC addresses the low skills trap to ensure Chicago’s economy does not become locked into a cycle of low value added, low skill and low wage employment.
Policy types and strategies The case studies demonstrate the range of different types of demand-side policies introduced in cities in recent years (Table 5), although the types overlap considerably at the level of specific policy initiatives. Most of the initiatives span two or more of the five policy types, all of which are represented in the case studies (Table 7). Three of the six case studies incorporate a strong element of business support, converging with demand-led skills programmes around the commitment to employer engagement. In the Pittsburgh case, this involves the awarding of tax credits to businesses that: are based in the PCKIZ zone; have been in existence for eight years or less; operate in one of the target industries (see below); and which have experienced an annual increase in revenue. In San Antonio, the focus is on working closely with businesses in target industries to assess and support their skills needs. Similarly, Limerick for IT is about partnership with key employers to deliver tailored skills programmes, with the aim of increasing labour demand through the attraction of additional investment and enhancing skills and job quality. The San Antonio case covers all types of business recipients, but PCKIZ is focused on new and existing businesses, while Limerick for IT is targeted on inward investors. Three of the six initiatives (San Antonio, CMRC, and Limerick for IT) are based around demand-led skills and training programmes that involve the close alignment of education and training provision with business needs. These initiatives are demand led in the sense that they start with the identification of the labour demands and needs of employers in key sectors, based upon the analysis of skills gaps. This provides the basis for initiatives to align and integrate workforce development activities and higher and secondary education provision with these demand gaps. In both Chicago and San Antonio, this approach has explicit social inclusion and poverty reduction aims. Two of the initiatives involve fiscal policy in combination with other policy types. The PCKIZ programme offers qualifying companies tax credits to offset against certain state tax liabilities with the aim of fostering business growth and entrepreneurship. By contrast, the Melbourne infrastructure and local content initiatives use the expenditure and procurement powers of the state to promote local sourcing, employment and skills. In both cases, the initiatives are designed and implemented at the state level rather than by the cities, reflecting the decentralisation of fiscal powers to the state level within the federal systems of the US and Australia. Nonetheless, cities in the US have considerable fiscal powers, particularly over sales and property taxes, which can be used to promote inclusive growth. One example is San Antonio’s decision to use one-eighth of a cent of its sales tax allotment to fund a full day prekindergarten programme for the whole city, with a particular emphasis on reaching disadvantaged communities (Lantigua-Williams, 2016). This emerged from the SA2020 visioning process (see Green et al, 2017) (but had to be approved by a referendum).
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Infrastructure investment is an area in which cities can promote inclusive growth through demand-side interventions, often using their powers over procurement and planning to create employment and training opportunities for unemployed local residents (While et al, 2016). This is evident in the Melbourne case, which involves the state of Victoria using major infrastructure projects to create jobs and employ some of the most disadvantaged workers who find themselves either unemployed or in insecure work (see Box 5). The use of cities’ economic planning and strategy powers is evident in Albacete and Limerick (Table 7). Becoming a ‘smart, green city’ is central to Albacete’s Strategic City Plan, which sets out a range of priorities, programmes and actions for promoting a ‘green and sustainable economy (see Box 4). The Limerick for IT initiative emerged out of the Limerick 2030 Plan, which identified the need for an IT skills framework that could enable job creation and leverage the knowledge-based economic potential of Limerick, given the dominance of the IT sector in the region. Several of the initiatives involve industry targeting through the identification of key growth sectors and the promotion of middle-skill jobs and occupations. As such, a sectoral focus is often associated with an element of occupational targeting through the identification of key occupations and job types, to respond to the skills demands and needs of employers in key industries. Area targeting is most explicit in the cases of PCKIZ which serves disadvantaged neighbourhoods of Central Pittsburgh (Box 1) and the CMRC which is based on the West Side of Chicago and the Austin neighbourhood in particular.
Industry targeting Most case study cities identified target industries and sectors. Some have focused on manufacturing and construction (Chicago, Melbourne and Albacete), whereas others have targeted multiple sectors and/or occupations. The sectors were selected because of their strategic significance for their city economy and size, growth prospects and potential for future upgrading and reskilling (Box 3) Inclusive growth aims are important in terms of more and especially better jobs, particularly through the adoption of middle skills strategies promoting sectors with demand for jobs which require a high school education but less than a full college or university degree (SA 2020, 2015). Such strategies target specific occupations and jobs that pay above average wage rates for the city economy in question, reflecting the importance of generating ‘family-sustaining jobs’ (Liu, 2016). These target sectors are often relatively lower tech and mature and/or slower growing industries such as manufacturing, construction and healthcare (Box 3), in contrast to the pre-occupation with high-tech and fast growing industries in the UK (Bakhsh et al, 2015). By contrast, the PCKIZ approach has more in common with British cities in identifying 13 target sectors which companies have to operate within to be eligible for tax credits. These include including advanced manufacturing, clean tech, communication and information technology, life sciences and nanotech. This approach is designed to reflect the cross-cutting nature of innovation in high-tech industries.
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Box 3: Identifying target industries in San Antonio Workforce development initiatives in San Antonio have targeted three key sectors and associated occupations, stretching back to the establishment of Project QUEST (Quality Employment through Skill Training) in the early 1990s (Rademacher et al, 2001). Project QUEST was based on the principles of alignment with the occupational demands of employers and the provision of training only for occupations in demand that offered good pay and advancement opportunities. These principles were reflected in the selection of four target sectors: health services, business systems, information technology, and vehicle maintenance, repair and overhaul. The prioritised sectors have evolved over time. The Talent Pipeline Task Force (TPTF) initiative, which brought together several organisations to shape future workforce development in 2014–2015, refocused on health and biosciences, information technology and security, and transportation manufacturing (SA2020, 2015). The Task Force report targets particular in-demand and higher quality occupations within these sectors such as registered nurses, patient care assistants, pharmacy technicians, software developers, computer system analysts, heating, ventilation and air conditioning technicians, machine operators and aircraft mechanics. Selection of the three target industries is based on the existing structure of the city economy and diversification efforts through the adoption of a middle-skills strategy that priorities ‘better jobs’ offering above average wages and career paths. San Antonio’s economy is based on four key sectors – healthcare, education, defence and tourism – making it one of the most localised large regional economies in the US, relying heavily on these non-tradeable sectors (Brookings Institution, undated). Healthcare and social assistance is the largest industry by employment at 16%, followed by accommodation and food series (11%), retail (11%), educational services (10%), administration and waste management (7%) and finance and insurance (7%) (San Antonio Economic Development Foundation, undated). The prioritisation of healthcare reflects national trends and local sectoral specialisation. San Antonio has an ageing population that will require extensive healthcare and many local facilities that reflect a very strong military presence in San Antonio (called ‘military city USA’ according to a local authority official in one interview). The focus on transportation manufacturing reflects the military influence through associated aerospace companies and the presence of Boeing and the growth of an automotive sector based upon the attraction of a Toyota factory in 2003. IT has become a major industry in San Antonio, reflecting the rapid growth of a local start-up, Rackspace, into a large employer and the emergence of an associated and localised tech sector. The emphasis on information security reflects a strong military presence and the attraction of the Department of Defense Air Force Cyber Command function alongside a concentration of government cybersecurity agencies. In addition, the target sectors reflect average wage rates and industry growth trends. IT and manufacturing workers earn averages of US$79,000 and US$59,000 respectively, compared with San Antonio’s average of US$43,000 (SA2020, 2015). The equivalent figure for healthcare and bioscience workers was lower, but still above average at $45,000 (SA2020 2015). This middle-skills strategy precluded the selection of tourism as a target because it pays low wages, despite being an important sector of the city economy.
There is some evidence that the targeting of middle-skills industries and occupations has created jobs for residents that would otherwise be unemployed or in low-wage jobs. This is particularly the case for Project QUEST in San Antonio: participants in training programmes have to demonstrate economic need, defined as having an income that is less than 50% of the median income for the city’s population (Rademacher et al, 2001). Since it began in 1993, it has worked with more than 6,243 people in economic need and achieved a 90% placement rate (Project QUEST, 2016), securing very large wage increases for these participants (see Box 4). CMRC also explicitly targets low-income students in Austin through its manufacturing training and education, although a relatively limited number of students have actually entered manufacturing and engineering jobs. It is unclear how many of the 750 jobs created or safeguarded by Urban Innovation 21 in Central Pittsburgh since 2008 (see Box 1) have been taken by residents that would otherwise be in low-paid employment or unemployed, though connecting these groups to the city’s high-tech economy is the explicit goal of the organisation.
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Governance and leadership All six demand-side initiatives are cross-cutting in nature, spanning traditional policy domains and involving a range of actors (Table 7) (Green et al, 2017). While the case studies are focused on the city, and city councils and mayors are key actors, governance is multi-level in nature, encompassing vital relationships with regional and national governments as well as neighbourhood and community organisations. Except for Limerick in Ireland, they are all in more decentralised states which grant city actors greater autonomy than the UK. The role of mayors and city councils in instigating and leading demand-side initiatives is particularly evident in San Antonio and Albacete. The previous Mayor of San Antonio, Julian Castro (who resigned to become US Secretary of Housing and Urban Development in the Obama administration), drove the SA2020 participatory visioning process which convened the TPTF (Green et al, 2017). His successor as mayor, Ivy Taylor, has committed the city to skills development, viewing this as central to breaking the cycle of inter-generational poverty and supporting the focus on jobs that pay family-sustaining wages (local authority official, authors’ interviews, 2017). Albacete’s initiatives in the green and sustainable economy are led by the municipality as part of its Strategic City Plan and there is close collaboration with a wide range of stakeholders including business, business intermediaries, training and education providers, research establishments, trade and workers’ unions (Box 4). Box 4: Municipal leadership to create new jobs and growth in Albacete Through its Agenda 21 programme, the municipality of Albacete has highlighted the potential for inclusive growth in the green economy. This is grounded in a belief that this approach offers an opportunity to stimulate the construction sector and thus the economy in a new and sustainable way. The Strategic City Plan, now in its second phase, is founded in the city’s Local Agenda 21 work and methodology which started in 2000. The second plan has 8 priorities, 37 programmes and 269 individual actions. Everything the municipality does is rooted in the plan and one of the key priorities is ‘green and sustainable economy’. This priority is the foundation for city policy and enables a wide range of actions from strategic positioning to local employment and business development and rehabilitation of public buildings. Albacete has taken a multi-stakeholder approach to its efforts to become a ‘smart and green city’. The municipality leads the work in the green and sustainable economy in close collaboration with a wide range of stakeholders including business, business intermediaries, training and education providers, research establishments, trade and workers’ unions. Albacete is renowned for its civic participation through the Forum of Participation and Participatory Budgeting and this methodology has been useful in the development of the green economy, developing and maintaining buy-in across society. In addition, the Institute of Renewable Energy at the university incentivises research into renewable and green technologies which, when successfully transferred to the private sector, has a substantial impact on the green economy. Community groups and social movements have played important roles in establishing and shaping demand-led initiatives in Chicago and San Antonio. The CMRC emerged out of the work of Manufacturing Renaissance which was founded as the Midwest Center for Labor Research in 1983 by local union and community leaders in the face of local plant closures. In San Antonio, the Communities Organized for Public Service (COPS) and Metro Alliance social movements played key roles in the formation of Project QUEST, prompted by the closure of a Levi Strauss factory in 1990 (Benner and Pastor, 2015). Universities and anchor institutions played a particularly important role in the Limerick for IT and PCKIZ initiatives. Their involvement reflected the need for higher education courses and training geared to the needs of multinational employers in Limerick, and the embedded small liberal arts colleges in the communities in Pittsburgh. Private sector businesses and employers are involved in all the initiatives but played particularly prominent roles as key partners in the San Antonio and Limerick initiatives. In both cases, training and skills provision is employer-led with General Motors, Johnson & Johnson and the Kerry Group active players in Limerick, while the San Antonio Chamber of Commerce and major employers such as the H-E-B grocery chain were closely involved in the TPTF and the subsequent San Antonio Works (SAW) initiative (Box 5). State governments have played important roles, for example instigating the initiative in Melbourne and providing support and funding in Pittsburgh. The Victoria state government has established three local
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content and hiring initiatives in response to employment decline in manufacturing, requiring all public bodies to comply with the Victorian Industry Participation Policy (VIPP) and the Major Projects Skills Guarantee (MPSG) (Box 5). In Pittsburgh, the PCKIZ is one of 29 Keystone Innovation Zones (KIZs) in the State of Pennsylvania. The KIZs operate as part of a programme that seeks to promote innovation and entrepreneurship and retain talent, particularly college graduates, in the state. Established in 2007, PCKIZ is one of the few KIZs to serve a predominantly disadvantaged area. It is the product of local initiative, led by Duquesne University and community leaders to mobilise the potential of the area. The state government was initially reluctant to approve PCKIZ because of doubts about its benefits and impacts but one state official played a critical role in its establishment. As such, PCKIZ was bottom-up in its formation and development with state support, while the local sourcing and hiring schemes in Melbourne were more top-down. The CMRC and Limerick for IT initiatives have been supported by national programmes. The Manufacturing Connect programme is funded, in part, by a US Federal Department of Labour grant, while the Limerick for IT initiative has aligned itself with national programmes and customised them to local needs.
Box 5 Melbourne’s infrastructure investment and local content requirements To address the decline in manufacturing jobs, the government of Victoria has adopted three demand-side initiatives that work together to create more and better jobs within the city of Melbourne: the Victorian Industry Participation Policy (VIPP), the Melbourne Metro Tunnel Project (MTP), and the Major Project Skills Guarantee (MPSG). The Victorian Government is the largest procurer of goods and services in the state and, as a result, VIPP is designed to provide small and medium enterprises (SMEs) with opportunities to compete for government contracts. VIPP was first introduced in 2003, but was strengthened in 2015 under the Labor state government. Under this policy, SMEs must be considered for government contracts valued over $A3 million (£1.8 million) in metropolitan Melbourne. Additionally, under the VIPP, projects valued above $A50 million (£31 million) are deemed ‘strategic projects’, and have mandated local content requirements. The MPSG was introduced on 1 January 2016, and requires all government funded contracts valued over $A20 million (£12 million) to use Victorian apprentices, trainees or engineering cadets for at least 10% of total labour hours. The MTP is one of Australia’s largest ever infrastructure projects, with an estimated cost of $A9–11 billion (£6–7 billion). It was funded in 2015 and involves building two nine-kilometre railway tunnels beneath the Melbourne central business district. Under the VIPP and MPSG, 88% of content must be locally sourced, 10% of total labour hours must be comprised of apprentices, trainees or cadets, while 2.5% of total labour hours must be made up of indigenous employees. It is therefore creating more local jobs and simultaneously addressing the demographic groups most vulnerable to unemployment and insecure employment within Melbourne. Partnership is central to most of the initiatives, reflecting leadership models that are inclusive and participatory. Albacete is particularly renowned for its civic participation (Box 4), while San Antonio committed itself to the highly participative SA2020 city visioning process. The Urban Innovation 21 partnership that manages the PCKIZ in Pittsburgh is particularly broad based, comprising senior staff from local universities, the public sector, non-profit foundations and a leading law firm and bank. The CMRC is a partnership of Manufacturing Renaissance and 10 other organisations including the City of Chicago, the Tooling & Manufacturing Association, and the Chicago Federation of Labor. Limerick for IT is a partnership of major employers, including General Motors, Johnson & Johnson and the Kerry Group, the University of Limerick, the Limerick Institute of Technology, Limerick City and County Council and the national Industrial Development Authority (IDA) Ireland. While partnership arrangements are important in shaping the broad direction and strategy of the case study organisations, day-to-day leadership tends to be exercised by executive directors and senior staff. Examples of effective leaders include: the president and CEO of Urban Innovation 21, described as a ‘very dynamic leader’ very well respected in the community and able to draw in resources from a range of partners (state official, authors’ interviews, 2017); and the executive director of CMRC on the basis of his longstanding commitment to, and vision for, the revitalisation of manufacturing on the West Side of Chicago. 40
Design, implementation and impact An evidence gap exists in the systematic assessment of inputs, outputs, outcomes and impacts, and is acknowledged within the international literature and recent reviews for local policy initiatives (eg Green et al, 2015; Lee et al, 2014). This lack of data hampers efforts to answer questions of what works locally – or not – where, when and under what conditions. This gap is compounded by the contemporary nature of the six case study initiatives, several of which have only been established in the past four to five years, although more evidence is available for longer established initiatives such as Project QUEST (Gilbert ,2007; Rademacher et al, 2001). Generally, there is more information available on project inputs, activities and outputs than their broader outcomes and longer term impacts on their target groups and neighbourhoods. Three of the case study initiatives operate as local or regional workforce development partnerships to address the skills demands of employers (SAW, Limerick for IT and the CMRC). SAW is a product of the San Antonio Talent Pipeline Task Force report and was established in March 2015 as an industry-led intermediary charged with fostering experiential learning (Box 6). The Limerick for IT initiative was implemented through the multinational partners’ identification of some programming qualifications as critical skills relevant for emerging business opportunities. Bespoke Springboard courses were developed and delivered through the University of Limerick (UL) and the Limerick Institute of Technology (LIT) (Box 7). The CMRC has developed two principal programmes: the Austin Career and College Academy (ACCA), a secondary school established in 2007 that provides education in all facets of manufacturing; and Manufacturing Connect, a nationally funded programme linking post-secondary institutions with local manufacturing companies to provide students with work experience, paid internships, recognised qualifications and job placements. Both the Melbourne infrastructure initiatives and the PCKIZ have been designed primarily by their respective state governments, although local partners have added additional elements in the Pittsburgh case including paid internships and community grants competitions (local development officer, authors’ interviews, 2017). Across the initiatives, the matching and co-ordination of the demand-side with the supply-side initiatives locally has been critical. Box 6: San Antonio Works San Antonio Works (SAW) was established by Mayor Ivy Taylor and Bexar County to better connect local employers with the upper secondary and post-secondary education systems. It was initially based in the San Antonio Chamber of Commerce before moving to the San Antonio Economic Development Foundation (SAEDF) in March 2016. This shift has reinforced the demand-side credentials of SAW as the SAEDF is a private non-profit agency for business support and economic development, focusing on attracting inward investment and place marketing. It leads on the economic competitiveness strand of SA2020 and receives city and county funding. SAW is based on a merger of two different initiatives, the original SAW, which was started by H-E-B, a major grocery chain with its headquarters in San Antonio, and SA-TEC (San Antonio -Talent for Economic Competitiveness), an agency established by the city and county. SAW has a board of business leaders, with business ownership seen as vital by the city and other stakeholders in ensuring that the programme is demand-driven and responsive to the skills needs of employers. SAW has three main areas of focus:
Working with business to identify skills needs and gaps. SAW uses government data, but validates this with business to identify the skills sets where shortages are likely to hinder growth. Working with education bodies, training providers and colleges to ensure that they are teaching the identified skills and that the different levels of provision are aligned to clear career pathways that will provide jobs in the future. Working with a range of non-profit organisations and under-served (disadvantaged) populations. These activities are less business-led. The role of SAW and the city is to ensure this work is tied into the broader demand-led workforce development strategy, requiring the work of non-profits to be linked to organisations such as Project QUEST that provide occupational training to make people job-ready.
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Available evidence of programme outputs highlights the delivery of activities by the different initiatives. Based on its high number of participants, graduates and employment retention rates, Project QUEST has been described as an ‘exceptionally effective’” demand-led occupational training initiative (Gilbert, 2007). It is renowned for its intensive case management approach (local authority official, authors’ interviews, 2017). The PCKIZ has supported over 130 early-stage tech companies since its inception in 2007, with US$7.5 million tax credits awarded, and 750 paid internship assignments provided (personal communication to authors, 2017). The Manufacturing Connect initiative in Chicago has been successful in facilitating 98 paid internships and summer jobs for manufacturing students since 2014, with its programme participants earning 347 industry credentials. Although the MPSG was only established in 2016, it is forecast to create 100 opportunities for the MTP including 14 apprentices, 62 trainees and 24 engineering cadets (Bull, 2017). Outcomes relating to the support and retention of jobs are particularly important to demand-side initiatives. The CMRC helped 55 of its students secure graduate manufacturing jobs, and has worked with 91 manufacturing companies to provide work experience opportunities to students. Limerick for IT’s provision of springboard courses has resulted in two major business expansions and the creation of over 200 jobs since January 2014 (Box 7). Through the PCKIZ programme and related activities, Urban Innovation 21 is associated with the creation of over 250 jobs and the retention of over 500 jobs since 2008 (personal communication to authors, 2017). The MTP is forecast to create 4,700 jobs at the peak of construction activity and is committed to the development of employment and training opportunities for economically and socially disadvantaged individuals throughout the construction phase of the project (2018–2026) (Government of Victoria, 2016a). In addition to employment data, evaluations of Project QUEST have calculated average wage increases for participants and returns on investment. In 2014–15, it placed 362 graduates with an average wage of US $21.40 an hour, and an increase in annual wages for participants from $9,365 a year before they received training to US$42,097 in the second year following their engagement with QUEST (Project QUEST, 2016). While impressive, these figures should be viewed in the context of a total metropolitan workforce of 1,124,904 in May 2016. The return on QUEST investment was calculated to be $17.67 for every US$1 invested over a five-year period, based on the analysis of wages increases and cost per placement. Recently established, SAW is working with businesses on the collection of better data and measures to highlight skills gaps.
Box 7: Limerick for IT: General Motors and IBM Middleware The programme led by General Motors targeted IBM Middleware as a critical area of future software development. The training programme was developed by the University of Limerick in conjunction with General Motors, starting in July 2014. It was supported by Springboard, a national programme managed by the higher education authority on behalf of the Department for Education and Skills (DfES). Matching and co-ordinating demand with supply, General Motors opened operations in Limerick employing 70 people and hired the entire class of the course. The training provision was instrumental to GM’s decision to open operations in Limerick as it ensured a supply of job-ready candidates with the necessary skills. The commitment of the city council to provide premises ready to move into was also a key factor. The initiative’s success has been cited as an example of best practice in the 2015 National Skills Strategy in Ireland and the collaboration between the University and General Motors has been developed as a UIIN University Industry Innovation Network (UIIN) best practice case study. The partnership intends to scale up the model with the aim of creating 1,000 IT jobs in three years. Scaling up will be achieved by expanding the project across both multinational and large indigenous employers in the Limerick region and new sectors including financial and business services.
Challenges and limitations The biggest challenge for most of the case study initiatives is attracting and sustaining funding. While the MTP project funding was partly provided by the 50-year lease of the Port of Melbourne, Australia’s busiest port, to a private consortium for A$9.7 billion (Gordon and Willingham, 2016), selling off government-owned assets is not seen as a long-term or sustainable solution for public infrastructure projects (Daley, 2014). The PCKIZ programme in Pittsburgh has faced increased financial pressure in
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recent years because of state-level budget deficits with funding for tax credits reduced from $25 million to $15 million in 2015. Despite this decline in funding, PCKIZ has successfully raised money from local partners to support activities such as internships (local development officer, authors’ interviews, 2017). Such financial pressures are also reflected in the fact that the CMRC’s Manufacturing Innovation Park project, which has been in the planning stages since 2012, has not attracted the funding needed to begin construction. In the case of Limerick for IT, financial uncertainties and annual funding rounds are not only problematic for the higher education institutions providing courses, but also create considerable uncertainties for companies in relation to sustaining the flow of graduates. In addition, a recent higher education authority directive prohibiting any form of remuneration to academics for additional teaching makes it difficult to motivate academics to engage in Springboard courses outside normal teaching hours. The budget for SAW is relatively limited (under $600,000 a year), relying on the original donation from H-E-B plus contributions from the city and county, making additional funding a major priority for future years (local economic development executive, authors’ interviews, 2017). Other challenges and limitations include: high drop-out rates from programmes which have affected ACCA in Chicago; the disruption of business by the MTP in Melbourne; non-compliance with the VIPP of which there were 126 instances in 2015 which were reduced to 28 in 2016 (Government of Victoria, 2016b); reaching target groups such as minorities and women with entrepreneurship and innovation initiatives in Pittsburgh Central; and clarifying organisational responsibilities and reducing the duplication of services in San Antonino. For the CMRC, securing the buy-in of the private sector and demonstrating and validating the effective and legitimate roles of the public sector and non-profit intermediaries in the more laissez faire US culture were critical. For all the case study initiatives, the monitoring and evaluation of programme impacts remains a challenge.
Learning and adaptation for UK cities There are several lessons from the international case studies for UK policy. The first lesson is that demand- or supply-side initiatives are insufficient for city development and addressing inclusive growth aims if used in isolation. Both kinds of intervention are needed with an emphasis on clear and robust aims and rationales and the careful co-ordination, matching and sequencing of demand with supply-side initiatives at the local level. Second is the need to articulate and maintain an aspiration and focus upon generating more and better jobs. Even in challenging circumstances of economic restructuring, job loss, localised disadvantage and short-term pressures to create employment opportunities, the initiatives demonstrated the importance of focusing on the level and quality of employment, and encouraging the creation of better paying and family supporting jobs with development and career progression opportunities. Third is the importance of place-based approaches that adapt and tailor policy mixes appropriate to the needs of particular local economic circumstances. Differing local contexts and situations shaping policy design included structural economic change and shifts in the level and nature of labour demand locally, and the disconnection of local labour demand from disadvantaged groups. Development and deployment of an appropriate mix of policy types and targeting have been central to delivering locally bespoke demand-side interventions to address inclusive aims in particular city circumstances. Fourth are the benefits of integrating economic and workforce development initiatives from a demandside perspective, focusing on target sectors that are priorities for local economic development. Target sectors are selected on the basis of their importance to the city economy, growth trends, and the scope for them to offer more and better jobs in terms of wage rates and career pathways. When combined with intensive case management and support for participants, residents who would otherwise be in low-paid employment or unemployed can get and keep ‘better jobs’. Fifth, private and public sector employer engagement and partnership is central to the initiatives. Close and ongoing dialogue between employers and public and civic development institutions is integral in identifying the demand gaps and skills needs confronting employers, and to design training and workforce development programmes to address these gaps. Rather than designing interventions in isolation, addressing information and co-ordination gaps to match demand and supply locally is critical. 43
Sixth is the importance of local partners with autonomy and discretion to use and adapt national and state programmes and funding to address local needs with demand-side policies. In particular, this reflected the additional powers and flexibilities available to local actors in asymmetrical governance systems such as Spain and federal systems such as the US compared with the UK. Local policy-makers need to be open and responsive to the opportunities offered by national and regional programmes, while national policy-makers need to ensure that there is sufficient flexibility built into these programmes to allow them to be adapted to local needs and demands. The capability and capacity to connect and coordinate initiatives locally are important, alongside links to institutions at other levels such as state and national government where appropriate. Seventh, programme legibility and visibility to target groups and communities is another important lesson. Promoting awareness, understanding and showing the effectiveness of interventions through business and community engagement, and the demonstration of benefits and outcomes to local businesses and residents is critical in getting support and involvement. Business, community and citizen involvement has been used successfully in several of the initiatives to further their engagement and support initiative delivery. Eighth, clarity, consistency and persistence of leadership emerges as a key lesson from the case analysis, contributing greatly to the profile and visibility of Project QUEST, SA2020, the CMRC and PCKIZ initiatives. Such leadership is often collaborative in nature, based on bringing together resources and inputs form local and state governments, private sector employers, universities, community groups and non-profit foundations. Within this framework, local government and committed mayors have often played an important role in establishing the vision and strategies which have framed and supported demand-side initiatives. Critical too have been long-term commitment and sustained funding and support. Last, stronger data collection, monitoring and evaluation frameworks are needed to capture the design and delivery of effective demand-side policy initiatives. Gaps in assessing inputs, activities, outputs, outcome and impacts have been evident for all the case study initiatives.
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5 Conclusions and policy options: rebalancing city policy for demand-side policies for inclusive growth under existing and enhanced powers and resources While there is increasing interest in industrial strategies and demand-side approaches to inclusive growth, there is relatively little evidence on what these approaches might constitute. This study aimed to address this gap by developing new ideas and innovative approaches to help cities develop demand-side policies for inclusive growth. It has explained the rediscovery of the demand side and derived demand for labour in the context of contemporary understandings of city economies. The aims, economic rationales and policy types and analysis of international case study evidence have been addressed to help explain and underpin demand-side policies. Demand-side policies for inclusive growth aim to raise the level and enhance the quality of demand for labour in a city economy, increase labour demand for specific groups within the city, and/or improve the quality of jobs. It is critical that demand-side policies are complementary and supportive when matched and timed with appropriate supply-side policies within cities. If used in isolation or in disconnected ways, demand or supply-side policies alone are insufficient for city development and addressing inclusive growth. The international case study analysis reinforces the need for an appropriate policy mix for cities to combine and integrate types of policy focused on business support, demand-led skills programmes, city fiscal policy, infrastructure, and economic planning and strategy. Different types of businesses, industries, occupations and geographical areas can be targeted. Central to advancing this agenda is rebalancing city policy and identifying the kinds of demand-side policies cities in the UK can develop and implement under their existing and enhanced devolved powers and resources.
Rebalancing city development policy: towards ‘whole city’ approaches A key implication of the rediscovery of the demand-side in city economies and the experience of cities internationally is the need to rebalance city development policy. This rebalancing is required across five dimensions. First is broadening from a narrow focus on economic growth and gross value added (GVA) towards a wider idea of economic, social and environmental development in cities and ‘quality GVA’ that prioritises the level and nature of economic change to deliver more and better jobs (see, for example, Mlachila et al, 2014; RSA Inclusive Growth Commission, 2017). The second concerns the need to move beyond seeing supply-side policies as the only possible intervention to identifying an appropriate policy mix of complementary demand and supply-side approaches, implemented in an appropriate order. While – as with supply-side policies – there are caveats regarding their use, under certain conditions demandled policies can unlock constraints and stimulate corresponding supply-side responses, for example in relation to innovation gaps (Aiginger, 2016). Informed by the international case study analysis, the third dimension of rebalancing is shifting from disconnected economic and social policies to more integrated approaches that incorporate poverty reduction within (inclusive) economic growth strategies (RSA Inclusive Growth Commission, 2017). The fourth involves the co-ordination and integration of strategies focused on attracting external resources (principally inward investment and skilled labour) and internallyoriented initiatives seeking to mobilise indigenous potential within city economies. Finally, forms of decentralisation from the national to the city and city-regional levels are needed to provide appropriate devolved powers and resources to enable cities to rebalance their development strategies and policies 45
(Pike et al, 2016b). As the international case studies demonstrate, the autonomy and discretion of city partners is integral to designing tailored demand-side policies at the city level, matching and timing them with supply-side policies, and adapting national and other programmes and funding to address city needs. This rebalancing of city development policy sits within a vision and ambition for more holistic and integrated ‘whole city’ and place-based approaches to city policy for inclusive growth. Such thinking is gaining attention and traction across local government in the UK (see, for example, Barking and Dagenham Independent Growth Commission, 2016; Goff, 2016; Improvement Service, 2016; Local Government Innovation Task Force, 2014; Localis, 2015). The ‘whole city’ vision means connecting across the activities and policies of city authorities and their key local and national partners with a clear focus on the aim of promoting inclusive growth (JRF and IGAU, 2017). Such inclusive growth-oriented city visions are emerging internationally (see, for example, Green et al, 2017). The UK government’s (2017) industrial strategy too is concerned with developing a place-based approach, engaging decentralised institutions in its formulation and delivery, and ensuring the economy works for people and places across the UK. In practical terms, a ‘whole city’ approach involves capitalising on the full range of powers and resources of the city and its partners as well as the soft power wielded by its leaders to convene and connect the public, private and civic sectors. Such inclusive and distributed forms of place-based leadership are interpreted as critical for both mayoral and non-mayoral governance models (Hambleton, 2016), and are a key challenge for the new metro mayors and combined authorities in England (National Audit Office, 2017). Several of the rationales for demand-side policy interventions and the evidence from the international case studies underline the importance of clear leadership able to articulate a vision for inclusive growth and more and better jobs, as well as open and sustained dialogue and partnership between public, private and civic sectors in cities. Rebalancing city policy within whole city visions would create the conditions in which demand-side policies for inclusive growth are more likely to succeed. While the types of city level initiatives covered in the international case study analysis may represent ‘small beginnings’ that raise issues of upscaling local experiments (Johal and Williams, 2013), they are important in helping to recover and reinstate the demand side to city policy. Neither supply- nor demand-side policies are likely to be effective when used in isolation and in disconnected ways. In a context in which the limits of supply-side only policy are becoming increasingly evident, this research demonstrates that internationally demand-side policies for inclusive growth are complement and support to supply-side policies at the city level in the 21st century context.
Demand-side policy options for cities under existing and enhanced devolved powers and resources Building on the understanding of city economies, rationales and analysis of international cases, a critical task is identifying the kinds of demand-side policies for inclusive growth that UK cities can formulate and pursue under their existing and potentially enhanced devolved powers and resources. For each of the policy types identified above (Table 5) and reflecting the main points of learning and adaptation from the international case experiences, several demand-side policy options for inclusive growth for UK cities are identified below. Drawing on the wider set of policy options, five of the most promising and key priorities for demand-side policies for UK cities are identified. The policy options outlined below are not a comprehensive and exhaustive list, but are meant as an inspiration and spur to thinking about demandside approaches for policy-makers used to thinking and working only from the supply-side. First are business support policies. Under the current powers and resources at city level, the demandside policy options (and their underlying rationales) which cities could now pursue include: •
Identifying and prioritising key sectors and occupations for demand-side interventions for inclusive growth appropriate to the city economy (eg middle-level skills jobs strategies), as is evident in many of the international case studies. This should be part of a wider place-based approach to tailoring policy to local circumstances and would potentially include employment in the kinds of occupations and sectors identified in Section 2 which have high probabilities of good employment for less well educated workers (demand gap, demand linkages and information and co-ordination gap).
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•
Developing a new and related innovation sector strategy to grow and/or attract new and related economic activities in the city to increase labour demand and contribute to inclusive growth aims (eg via matching supply-side provision of incubators, science, innovation and knowledge parks and inward investment more closely to demand-side job generation) (innovation gaps).
•
Targeting support for social enterprise development and labour demand generation with inclusive growth aims (eg focused on social innovations and unmet social needs within the city) (innovation gaps).
•
Developing a ‘better jobs’ theme and priority within the city’s inclusive growth strategy focused on raising the quality of demand for labour and linking priority sectors for upgrading and productivity improvement (eg hospitality, leisure, retail, social care) with leading and more innovative sectors and initiatives for knowledge transfer (eg localising corporate social responsibility among utilities, supermarkets and banks) (low skills trap, building resilience and adaptability).
In comparison to the international case studies, the existing powers and resources of UK city authorities to develop demand-side policies for inclusive growth are limited. Further demand-side policy options (and their underlying rationales) under potentially enhanced devolved powers and resources therefore include: •
Establishing a ‘city development bank’ to provide capital, encourage investment and stimulate demand for labour by local businesses and entrepreneurs linked to inclusive growth aims (eg adapting a city-level national development bank model) (demand gaps and information and co-ordination gaps).
•
Auditing and addressing employers’ demand linkages and disconnections with a view to strengthening and deepening these links and connections to boost the level and quality of labour demand (eg via supply chain development programmes, local employment training focused on identified employer demands) (demand linkages).
•
Developing capacity among local entrepreneurs and SMEs to access local public procurement opportunities and linking this into increases in the level and quality of labour demand (eg capacitybuilding initiatives for SME access to public contracts) (demand linkages).
•
Supporting and/or establishing community and social finance institutions to stimulate demand for capital and subsequent labour demand through addressing unmet demand and social needs (eg community development finance institutions, investment trusts) (information and co-ordination gaps).
Second are demand-led skills policies. Under the current powers and resources at city level, the demand-side policy options which cities could currently develop include: •
Identifying skills gaps on the demand-side through dialogue with private sector employers and more closely aligning supply-side training initiatives to address these gaps (eg via labour market intermediaries). This involves the adoption of the kind of demand-led pipeline approach followed in the San Antonio and Limerick cases, linked to middle skills strategies that target priority sectors (demand gaps)
•
Establishing better jobs as an equal priority to more jobs in city development strategies (eg as in the strategic economic plans of some LEPs in England). One example is the adoption of charters and codes of conduct for inclusive growth and better jobs at the city level such as the Salford City Mayor’s Employment Charter which emphasises employment standards alongside local hiring and procurement. There is scope for such charters to become quality standards for local business to aspire to if they want to access local public procurement opportunities and become model employers and the sources of demonstration projects and good practice in city economies (low skills trap)
•
Establishing and deepening partnership working with local anchor institutions (eg hospitals, universities, large private sector employers) to identify and enhance their contributions to increasing the level and quality of labour demand and inclusive growth aims, particularly through local procurement and local training and hiring initiatives (see Devins et al, 2017). The expression of demand through procurement is especially important, acting as a market maker to create confidence, encourage private investment and boost employment (demand linkages).
•
Adopting Living Wage commitments as conditions for public sector investment and procurement to raise job standards and wages (eg US city living wage ordinances). As well as increasing incomes for the poorest working households and reducing welfare expenditure through taxpayer subsidisation of 47
low wages, the multiplier effects emanating from the increased purchasing power of low-income residents can increase demand for goods and services and address demand gaps (Cooper and Hill, 2012) (low skills trap, demand gaps). Gaps in existing power and resources limit the capacity of UK city authorities to promote additional demand-led skills policies, particularly given the limited control and influence of cities over national skills and welfare budgets, further and higher education institutions and private sector employers. Further devolved powers and resources would open up the following demand-side policy options for city leaders. •
Integrating economic and social policy with skills and workforce development at the city level, for example identifying and articulating the labour demand needs facing local employers and better connecting these with skills provision through the further and higher education systems and labour market intermediaries. Cities would have to have further powers over skills programmes and budgets (eg reform of apprenticeships, grant for employers, adult and basic skills programmes) currently only evident in some areas as part of their devolution and city deals (eg Greater Manchester, Sheffield City Region). In the international examples, Limerick and San Antonio have been able effectively to ‘bend’ the labour supply generated through national programmes to address and match local labour demands (low skills trap).
•
Harnessing post-16 education policy and budgets to better connect employers (public, private, civic) on the demand-side to schools, colleges and universities on the supply side. This would enable the education and training institutions to work more closely with combined authorities and elected metro mayors to address critical skills gaps identified by employers (demand linkages and information and co-ordination gaps).
Third are city fiscal policies in which city authorities are most constrained by limited fiscal devolution in the UK especially in comparison with several of the more devolved governance systems in the international case studies. There are, nonetheless, some demand-side measures that cities can introduce under existing powers to contribute to inclusive growth aims, largely involving the use of public procurement to support local sourcing, hiring and training. •
Localising and pooling public, private and civic sector demand through procurement and hiring strategies that promote the increased level and quality of labour demand and inclusive growth. City authorities and other key anchor institutions would need to take a lead. The aim is to better integrate and match the demand and supply sides in the labour market by influencing the procurement and hiring decisions of key employers and supporting local SMEs to provide goods and services to these key employers and generate their own derived demand for labour respectively. US cities such as Chicago and Cleveland have led the way internationally, followed by Preston in the UK (Jackson and McInroy, 2017) (demand gaps and linkages).
•
Attaching conditions and targets to major public procurement contracts to contribute to inclusive growth aims by increasing the level and nature of employment and training opportunities. This policy has been adopted recently by several UK cities including Birmingham, Glasgow and Leeds (JRF, 2016; Newby, 2017). It has the potential to be adopted more widely by a greater number of cities, for example through conditions on public contracts via the Social Value Act. While many public sector bodies in the UK have identified employment creation and training as key social value priorities, there is scope for this approach to be extended across a range of services and partners through the adoption of clearer policies (Social Enterprise UK, 2013) (demand gaps and low skills trap).
The relatively limited financial powers and resources of UK cities mean that further fiscal devolution could open up several additional demand-side policy possibilities. The most important of these include: •
Developing a ‘whole city’ approach by enabling the pooling of budgets and the co-commissioning of services between city authorities and key partners. This measure would allow local authorities to extend their influence over partner expenditure and the level and quality of demand for labour, based on the pooling together of limited resources to achieve positive inclusive growth outcomes for the city (see Thomas, 2013). Experimenting with such a policy could build upon the ‘Total Place’ pilots introduced under the last Labour government (information and co-ordination gaps).
•
Extending appropriate discretion for local fiscal incentives for investment and boosting the level and quality of labour demand, for example through tax relief, capital allowances, National Insurance Contributions and business rates. Here, further devolution could offer cities greater control over
48
enterprise zone incentives and sites, enabling them to offer tax relief and capital allowances to companies that stimulate labour demand to contribute to more and better job creation and meet inclusive growth criteria. As demonstrated in the Pittsburgh case, cities can use such powers to connect disadvantaged areas and groups to the principal drivers of local economic growth. Further fiscal devolution would enable such tax relief to be extended beyond the current focus on business rates. Allowing firms to trade these tax relief entitlements could stimulate demand by generating revenue for them to invest in more and better job creation and equipment (low skills gap). •
Expanding the prudential borrowing powers of city authorities to raise funds (eg via Public Works Loan Board) for projects focused on boosting the level and quality of labour demand and contributing to inclusive growth, underpinned by national state guarantees (eg via HM Treasury). This approach could be expanded through innovation and experimentation with new funding and financing instruments to stimulate more and better jobs and generate inclusive growth (eg hypothecated tax instruments for inclusive growth aims, local social impact bonds, ‘inclusive growth bonds’) (demand gaps and demand linkages).
•
Widening the range of local tax instruments to increase city tax bases and fiscal capacity, for example through land value and local income taxes in addition to business rate reforms in England. This would allow UK cities to reduce their dependence on central transfers and capitalise on the value and income that flows through them, diverting some of this value towards boosting the level and quality of labour demand and contributing to inclusive growth goals (RSA Inclusive Growth Commission, 2017) (demand gaps and demand linkages).
•
Creating a ‘better jobs fund’ to support labour demand stimulation and inclusive growth aims among local employers, underpinned by the increased taxation and borrowing powers outlined above. This would provide financial incentives to employers to improve wages, job security and career progression, potentially having a demonstration effect beyond the companies receiving direct support (low skills trap).
•
Establishing a new post-Brexit rebalancing or inclusive growth fund equivalent to the current value of European Structural and Investment Funds (ESIF), as the Conservative Party pledged in its 2017 manifesto. This would focus on strengthening the economy of lagging cities and regions that qualified for ESIF funding through strategies of demand-side stimulation and business innovation and upgrading (JRF, 2017) (demand gaps, demand linkages, resilience and adaptability). Depending upon how the Brexit process unfolds, there may be potential for greater scope to prioritise local procurement and inclusive growth if the UK is no longer subject to EU state aid rules (Institute for Government, 2017).
Fourth are infrastructure investment policies. Here, cities can introduce a range of measures to influence the level and quality of labour demand and contribute to inclusive growth aims under their existing powers and resources, including: •
Attaching inclusive growth conditions to public and private capital investments in infrastructure projects to promote training, local employment and local sourcing. For example, community benefit agreements have been widely used to generate local benefits in the US since the late 1990s, operating in similar fashion to Section 106 agreements in the UK. There is scope for cities to reorient such planning obligations towards the generation of more and better jobs and inclusive growth goals such as the hiring of disadvantaged groups on major construction projects, building on examples such as Glasgow’s Commonwealth Games Apprenticeship Initiative (Christie and Danson, 2016). There is scope to extend this approach beyond the current emphasis on more jobs and training places to incorporate job quality in terms of wages, security and career progression (demand gaps, demand linkages).
•
Focusing planning regulation conditions on demand linkages capable of creating more and better jobs and addressing inclusive growth aims. This measure could include zoning for businesses in identified priority sectors and locating key employment sites next to areas characterised by high levels of multiple deprivation. Here, existing experiences indicate that further support will be needed so that demand- and supply-side policies are co-ordinated to ensure that disadvantaged groups are engaged and supported to access such sites and gain employment in priority sectors (demand gaps, demand linkages).
49
Further devolution would enhance the capability of city authorities in this area to introduce additional demand-side policy initiatives. These can include: •
Developing payment by results mechanisms for capital and revenue projects, for example through TIF-style instruments to support demand-side oriented projects for people and skills with inclusive growth aims (demand gaps, demand linkages).
•
Establishing ‘city wealth funds’ and strategies with inclusive growth aims, based on the pooling of investment budgets and prioritising local finance re-circulation into local housing and transport projects that generate more and better jobs and address inclusive growth objectives (demand gaps, demand linkages).
•
Developing the capacity to influence national and regional programmes and ensuring the closer alignment and advancement of key partner investment plans with city inclusive strategy and aims and an increased level and quality of labour demand (eg with Department for Transport, Network Rail and utilities) (information and co-ordination gaps).
•
Exploring the potential inter-dependencies between infrastructure investments and the demand for local goods and services and derived demand for labour (eg waste incinerators and transport system heat generation for laundries and greenhouses) (iBUILD, 2015) (resilience and adaptability).
Economic and planning strategies are the final area of potential demand-side policies for cities. There is considerable existing scope for city authorities and their key partners to adopt a more co-ordinated and strategic approach to the generation of more and better jobs and inclusive growth within their current powers and responsibilities, making progress in this area less dependent on further devolution (JRF and IGAU, 2017). Demand-side policy initiatives could include: •
‘Inclusive growth proofing’ current policy areas and their contributions to the generation of more and better jobs and inclusive growth aims. This would involve reviewing the full range of policy areas and expenditures from an inclusive growth perspective including culture, education, environment, health, housing, planning, social care and transport. Opportunities can then be identified to adapt and ‘bend’ local and national spending towards inclusive objectives as part of a broader ‘whole city’ inclusive growth agenda (demand gaps and linkages).
•
Setting and leading a clear and prioritised inclusive agenda at the city level through the development of a compelling vision of inclusive growth, formulating demand-side strategies and engaging key partner institutions and constituencies (Green et al, 2017; JRF and IGAU, 2017). Drawing on the importance of clarity and leadership from the international case studies, this policy could involve the establishment of city-level (mayoral) inclusive growth or more and better jobs commissions and/or compacts to promote the inclusive growth agenda and engage the private, public and civic sectors. Examples include initiatives such as Sheffield’s Fairness Commission and Our Fair City campaign (information and co-ordination gaps).
•
Building up the research, analysis, evaluation and policy-making capacity to support the inclusive growth agenda, incorporating a demand-side focus in the context of devolution. Demonstrated in the international case studies, this policy would entail the articulation of clearer aims and closer monitoring of cities’ progress towards inclusive growth objectives, building on the recently established inclusive growth monitor (Beatty et al, 2016). Here, the New Economy Manchester model has led the way in the UK (Holden and Harding, 2015) and been expanded locally by the JRF and University of Manchester Inclusive Growth Analysis Unit, exposing a lack of research and analysis in other cities that needs to be addressed through a concerted effort by city authorities and their partners (information and co-ordination gaps).
•
Undertaking demand-side city economic audits to establish and aggregate the scale and nature of existing and unmet social needs and the labour demand and skills gaps facing employers in key sectors, involving business surveys of skills and labour demand and community assessments of unmet social needs (information and co-ordination gaps).
The devolution of additional powers and resources would enhance the capacities of cities to promote and progress the demand-side generation of more and better jobs and contribute to inclusive growth aims in two key ways: •
Allowing and enabling city authorities to extend their leadership role on inclusive growth, introducing and articulating their demand-side agenda and inclusive growth aims into the objectives, policies and expenditure of key partner organisations in wider policy areas including economic development, 50
health, housing, transport and giving them additional (co-)commissioning and delivery powers (information and co-ordination gaps, demand gaps and linkages). •
Supporting the creation of a single shared ‘inclusive growth service’ within and across local authorities in a combined authority or adjacent areas, for example through multi-authority service integration agreements. This would strongly embed the notion of inclusive growth as an organising principle for cities and city regions in the process of service delivery as well as policy formulation (JRF and IGAU, 2017) (information and co-ordination gaps).
Five priorities for UK cities’ industrial strategies Building on this wide-ranging review of demand-side policy options, here we identify five specific policy priorities for UK cities in designing local industrial strategies. These have been selected as the most promising based on the report’s demand-side perspective and their potential to contribute to inclusive growth aims. They should be developed as part of a place-based approach tailored to local circumstances, involving a selection of demand- and supply-side policies designed to address the particular inclusive growth issues deemed important in individual cities. The five key priorities for UK cites are: •
Identifying and targeting inclusive growth sectors: This policy area is being actively used as a demand-side approach to generate more and better jobs, demonstrated by its prevalence and use in the international case examples. Acknowledging that different sectors have different contributions to enabling moves towards inclusive growth within city economies, a policy priority is identifying and actively targeting those sectors that are growing, strategic and have the potential to create employment opportunities at a level and quality appropriate to the aspirations for inclusive growth within the city.
•
Fostering demand-led skills development: This policy area involves making better connections and co-ordination between the existing and new supply-side policies and demand-side policies within city labour markets through policy and programme design, alignment and institutional partnerships. Such linking and integration gives opportunities to increase the level and quality of labour demand, and more and better job opportunities in the city labour market in ways better connected and matched to labour supply.
•
Building closer public and private sector employer engagement and partnership focused on priority sectors: Tackling information, co-ordination and innovation gaps, the creation of stronger connections between public and private sector employers will support demand-side approaches to more and better job creation and inclusive growth. Potentially linking to the first priority above (identifying and targeting inclusive growth sectors), such engagement can be focused on key and connected sectors and private sector employers. Policies could be based on addressing sectorspecific demand-side issues and potentially involving new sector-focused institutions to facilitate and enable public and private collaboration and joint working.
•
Leading and lobbying for greater devolved powers and resources for city authorities and key partners to pursue demand-side polices for inclusive growth: This policy area seeks to enhance the autonomy and discretion for city authorities and partners to design locally appropriate demandside policies at the city level, match and co-ordinate them with supply-side measures and adapt and bend national and other programmes and funding to tackle local needs. Creating space for innovation and experimentation is critical given the rediscovery of the demand-side and the need to think innovatively about the potential for demand-side policies for inclusive growth and their articulation and connection with existing supply-side policies at the city level.
•
Strengthening data collection, analysis, monitoring and evaluation activities and frameworks: Given the uneven and emergent evidence base on demand-side policies for inclusive growth at the city level, this policy area is critical to building knowledge and understanding of the design, targeting and effectiveness of policy approaches. Supporting the other policy priorities above, enhanced data analysis is critical in identifying key sectors for targeting for demand-side policies in the ways discussed in Section 2, auditing and reviewing demand linkages and disconnections among local employers, and identifying currently unmet social needs. Information gathering can be facilitated by close relations and sharing between public, private and civic sectors within the city.
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Acknowledgements Thanks for their advice and input to Dave Innes, Josh Stott, Katie Schmuecker, Mike Hawking and Ashwin Kumar at JRF and Mike Campbell. Thanks also for sharing their views and experiences to David Bailey, Henry Overman and the international case study interviewees.
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Appendix 1: City definitions City definition
Newcastle (North East Combined Authority)
Cardiff (Cardiff Capital Region City Deal)
Manchester (Greater Manchester Combined Authority)
Liverpool (Liverpool City Region Combined Authority)
Sheffield (Sheffield City Region)
Nottingham (following Clarke, 2016)
Birmingham (West Midlands Combined Authority)
Local authorities County Durham Gateshead Newcastle upon Tyne North Tyneside Northumberland South Tyneside Sunderland Blaenau Gwent Cardiff Newport Bridgend Merthyr Tydfil Rhondda Cynon Taff Vale of Glamorgan Torfaen Monmouth Caerphilly Bolton Bury Manchester Oldham Rochdale Salford Stockport Tameside Trafford Wigan Halton Knowsley Liverpool Sefton St. Helens Wirral Barnsley Doncaster Rotherham Sheffield Bassetlaw Bolsover Chesterfield Derbyshire Dales North East Derbyshire Nottingham Ashfield Broxtowe Gedling Mansfield Newark and Sherwood Rushcliffe Birmingham Coventry Dudley Sandwell
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Leeds (West Yorkshire)
Glasgow (Glasgow City Region)
London
Edinburgh (City Region)
Bristol (following Clarke, 2016)
Solihull Walsall Wolverhampton Bradford Calderdale Kirklees Leeds Wakefield East Dunbartonshire East Renfrewshire Glasgow City Inverclyde North Lanarkshire Renfrewshire South Lanarkshire West Dunbartonshire Greater London Authority area Edinburgh, City of Fife West Lothian East Lothian Midlothian Scottish Borders Bristol, City of North Somerset Bath and North East Somerset South Gloucestershire
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Notes 1.
We use the 2014 figures as these were in use for most of 2015.
2.
Data for hourly pay is windsorised at the 1st and 99th percentiles to exclude outliers.
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About the authors Andy Pike is the Henry Daysh Professor of Regional Development Studies and Director of the Centre for Urban and Regional Development Studies (CURDS) at Newcastle University. His research interests are in the geographical political economy of local and regional development and governance. He has undertaken numerous research projects for the Organisation for Economic Co-operation and Development, United Nations-International Labour Organisation, European Commission, UK government and national, regional and local institutions. He is widely published in international journals and author and editor of several books on economic geography and local and regional development Neil Lee is an Associate Professor in Economic Geography at the London School of Economics and Political Science, where he is Director of the MSc in Local Economic Development. He is an affiliate of the Spatial Economics Research Centre (SERC), the International Inequalities Institute (III) and the Centre for the Analysis of Social Exclusion (CASE), and a Fellow at the University of St Andrews. His research focuses on urban and regional economic geography, and has been funded by organisations including the Organisation for Economic Co-operation and Development and UK government departments. Before joining academia, he was head of socio-economic research at the Work Foundation. He is in the final stages of an ESRC-funded project on growth sectors and poverty reduction. Danny Mackinnon is Professor of Regional Development and Governance in the Centre for Urban and Regional Development Studies (CURDS) at Newcastle University. His research interests are in the institutions and politics of urban and regional development and the adaptation of urban and regional economies. He has undertaken research funded by several organisations, including the Economic and Social Research Council, Department for International Development, Research Council of Norway and JRF. He is widely published in international journals and the author of a popular economic geography textbook. He has been an editor of the international multi-disciplinary journal Urban Studies since 2009.
Louise Kempton is a Senior Research Associate in the Centre for Urban and Regional Development Studies (CURDS) at Newcastle University. Her research is focused on the relationship between universities and regions and particularly the role of universities as ‘anchor’ institutions in their local economies. She is the author/co-author of several recent academic and policy publications exploring the barriers and drivers to universities’ involvement in local and regional development and innovation, including the recently published book Leading and Managing the Civic University: The
Leadership and Policy Challenges.
Yohan Iddawela is a PhD candidate at the London School of Economics and a Fellow at the Institute for State Effectiveness. His research focuses on spatial inequalities and institutional quality. He has undertaken research projects for the Organisation for Economic Cooperation and Development and the World Bank. He was previously a policy adviser for the Australian Department of the Prime Minister and Cabinet and served as an attaché at the Australian High Commission in London. He has an MSc in Local Economic Development from the London School of Economics and Political Science.
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Inspiring Social Change
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