Northern Economic Summary: March 2012

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IPPR North, economy, jobs, regional issues

Author(s):  Will Cook
Published date:  14 Mar 2012

2011 ended badly for the UK economy and the North did not escape the downturn during the final quarter, with the gap between the unemployment rate in the North and the South East opening up to near record levels.

However, 2012 seems to have started well with the labour market stabilising and the North leading the way back to growth. A focus on jobs and investment is paramount to harness northern growth to drive national prosperity.

Commentary

Latest GDP figures indicate that the North grew little during 2011 

The most recent UK GDP estimates for Q4 2011 showed a large contraction of 0.9 per cent in the manufacturing sector, and given that the North contributes to 27 per cent of UK output in this sector (chart 1), it is likely that  the northern economy ended 2011 having wiped most of the growth gains during the year. The prospects for 2012 look difficult with the possibility of the eurozone crisis translating into depressed UK growth and the continued reductions in public expenditure.

… and this has translated into continued worsening of labour market conditions …

Unemployment in the North of England worsened over the last quarter of 2011 despite evidence that public sector job losses have slowed, suggesting that the private sector is struggling to take up the slack. Unemployment now stands at 9.8 per cent of the economically active population of the North (chart 2), marginally up on the figure from the previous quarter, and the claimant count in January registered its 11th consecutive monthly increase to now stand at 456,400 claimants (chart 3), 6.2 per cent of the population. Just under a third of these claimants are aged 18–24 as youth unemployment continues to rise.

… with the gap in unemployment rates between the North and South widening further…

As predicted in IPPR North’s October 2011 economic briefing, the divide between the North and the South East continued to increase over this period with the gap between the unemployment rate in the North of England and the South East equalling the widest on record since the Labour Force Survey began in 1992 (chart 4). This is due to the differing trajectories after the end of the 2008–09 recession: whereas unemployment in the South East has remained below its recession peak, in the North there has been a more pronounced double-dip in terms of the labour market, if not in output, over the course of the last year (chart 5).

… driven by a shedding of white collar labour in the North.

Further analysis of how this gap opened up during 2011 indicates that there is a strong sectoral and occupational element: while the increase in unemployment associated with the 2008–09 recession was mainly experienced by those at the lower skill end of the labour market in both the North and the South East, the increases in unemployment over 2010/11 in the North appear to be a white collar affair with reductions in employment for managers and senior officials and administrative staff. This appears to support the claim that public sector job cuts are not being offset by new jobs in the private sector. Conversely, in the South East the numbers employed as managers and senior officials has been increasing since the recession officially ended in the final quarter of 2009 (chart 6). This divergence is also mirrored in employment in the service sector (chart 7). Perhaps worryingly for the northern economy, the temporary recovery in the numbers in employment after the recession ended were almost solely driven by those finding employment in low skill occupations.

However there are a number of signs that the North might be turning a corner at the start of 2012 and driving UK growth through investment in buildings and technology …

The latest Purchasing Managers Index figures indicate that the Northern economy is starting to pick up pace: the two largest regions in the North – the North West and Yorkshire and Humber – have been jockeying for position as the UK’s fastest-growing region. If the country is to avoid a technical recession in Q1 2012 then it is likely that it will be due to the northern economies leading the way. Part of this recovery may be due to improving prospects in the manufacturing sector after a difficult final quarter of 2011. There are indications from the labour market that firms in the North are starting to invest in construction and technology, with a sharp decline in the number of people claiming JSA whose usual occupation is within the construction and science and technology sectors (table 8). SEMTA, the Sector Skills Council for Science, Engineering and Manufacturing Technologies, reports on a new North–South divide that is opening up – that of upskilling the workforce in the key growth sectors that the council works in: a quarter of employers in these sectors in the North are offering apprenticeships, compared with 17 per cent nationally and the North is accounting for a half of all engineering apprentices that are over 25. It is this sort of investment by employers that is likely to be contributing to the growth in northern regions.

… the pressing problem is the overhang of unemployment…

A positive side of this upturn is that the level of new claims has dropped significantly in the last year such that the proportion of the claimant count that are new claims (claims made within the last month) is now at its lowest level since early 1997 (chart 9). Considering the annual change in the level of claimant count of 18–24 year olds reveals a small, but potentially significant turning point in the problem of increasing youth unemployment (chart 10). However there seems little evidence that this upturn in business activity is translating into increased widespread hiring with the prospect of a drawn-out ‘jobless recovery’ ever present and with public sector job losses likely remain a drag on local demand. Indications are that firms are using the labour that they have rather than hiring new staff to meet the recent increase in demand. The continued uncertainty around the prospects for the future of the UK economy is leading to an emerging problem in the northern labour market that the unemployed are finding it increasingly difficult to enter employment. The rate that people are flowing off the claimant count has been declining since January last year (chart 11) and just 1 in 20 long-term claimants (claiming for over a year) left the claimant count in January 2012. This is despite an estimated £42 million having been paid to Work Programme providers over the period June–October 2011. Part of this trend is due to the decline in the rate that the long-term young unemployed are entering work, a phenomenon that was traced back to the scrapping of the Future Jobs Fund as detailed in the October 2011 Northern Economic Summary. Looking at the off-flow rate of all claimants, you would have to go right back to the era of the last Conservative government (January 1997) to find a time when the quarterly rate of those leaving the claimant rolls in the North was as low.

… and a misguided programme of government investment that is not getting behind the regions in the North that are demonstrating that export-led high value added growth is possible.

With business activity displaying an upturn and a growing army of unemployed labour available to meet the demands of any economic recovery, the missing piece of the jigsaw is surely investment by firms in skills and technology and by government in infrastructure. There are tentative indications that the private sector is moving in this direction, but recent analysis by IPPR North into the government’s initiative to boost transport infrastructure investment finds that 84 per cent of planned transport investment is in London or the South East compared to 6 per cent in the North of England.

Recommendations

  • In line with previous IPPR work, we recommend the government should offer a guaranteed job, paid at the minimum wage or above, to anyone who has been unemployed and claiming JSA for more than 12 consecutive months. The guarantee should be matched by an obligation to take up the offer or to find an alternative that does not involve claiming JSA. This guarantee could be applied on a targeted basis: that is, in the form of a Targeted Jobs Guarantee, for all people living in areas where the job density ratio is twice the national average.
  • IPPR North is calling on government to invest in five Northern Rail Priorities including the Northern Hub and to review all post-2014 major infrastructure projects ahead of the 2014 spending review in order to place greater emphasis on achieving its own stated objective of rebalancing the economy between the North and the South.
  • The centralisation of innovation funding should be reversed. Funding should be devolved down to the sub-national level to allow areas to be agile in reacting to new opportunities, to encourage spatial specialisation and to support local innovation ‘ecosystems’. As the main vehicle for driving economic growth at the sub-national level, this could be a role for LEPs.

Charts

1. The Northern Economy by Sector ^back

1.The Northern Economy by sector

2. Unemployment rate in the North 1992-2012 ^back

Unemployment rate in the North 1992-2012

3. Claimant Count in the North 2007-2012 ^back

3. Claimant Count in the North 2007-2012

4. Unemployment gap between North of England and South East ^back

4.Unemployment gap between North of England and South East

5. Unemployment trajectories post recession: The North and the South East compared ^back

5.Unemployment trajectories post recession: The North and the South East compared

6. Index number of people employed as Managers and senior officials (June 2007-June 2008 = 100): The North and South East compared ^back

6.Index number of people employed as Managers and senior officials

7. Index number of people employed in the service sector (June 2007-June 2008 = 100): The North and South East compared ^back

7.Index number of people employed in the service sector

8. Change in claimant count January 2011 to January 2012 by usual occupation of claimant (Only occupations with declining numbers on the claimant count shown). ^back

8.Change in claimant count

9. New JSA claims as a percentage of the claimant count in the North ^back

9.New JSA claims as a percentage of the claimant count in the North

10. Annual change in claimant count of those aged 18-24 ^back

10.Annual change in claimant count of those aged 18-24

11. Percentage of claimant count flowing off each quarter ^back

11.Percentage of claimant count flowing off each quarter

 
 

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Will Cook, Associate Fellow