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02.01.19

People make places: breaking the low-skilled equilibrium

Source: PSE Dec/Jan 2019

Cities across the country are stuck in a cycle of low-skilled workers with low-paid jobs facing few opportunities to upskill or progress, and the rise of robots and automation with only make matters worse. Elena Magrini, researcher at the Centre for Cities, reports.

‘What if we train people and then they leave?’ is the dilemma many cities face when deciding how to improve their economic performance by investing in people or physical assets. Indeed, unlike buildings, people can and do up sticks and move, meaning places do not necessarily reap the benefits of their investment.

The truth is that too many cities are caught up in a vicious cycle. Take Mansfield and Doncaster, for example: their productivity and weekly earnings are considerably lower than Aldershot and Reading, they only have half as many high-skilled people, and knowledge-intensive business services represent only 6% of all the jobs in these cities compared to more than 20% in the two southern cities.

Mansfield and Doncaster are in a ‘low-skilled equilibrium,’ where low-skilled people are trapped in low-skilled, low-paid jobs,  and the limited presence of high-skilled businesses gives them little incentive to upskill and fewer opportunities for progression.

On the other hand, cities like Reading and London are in powerful virtuous cycles, with a lot of high-skilled workers, high-skilled businesses, high productivity, and high wages that attract even more high-skilled people and businesses.

The result is that these two groups of cities are growing apart. And ‘the rise of the robots’ currently gathering pace in the labour market risks making the situation even worse.

Firstly, low-skilled cities are more vulnerable to job displacement. Technological change and globalisation will likely displace lots of jobs by 2030, most of which are routine, low-skilled occupations such as retail, warehousing, and administrative roles. Geographically, this means almost one in three jobs in Mansfield and Sunderland may no longer exist by 2030 – a much higher share of jobs compared to the one in seven jobs at risk in cities like Oxford and Cambridge.

Secondly, educational attainments suggest low-skilled cities are less well prepared to equip their people with the skills they need to succeed in the labour market of the future. Occupations new and old are now more than ever reliant on analytical and interpersonal skills, and this is true everywhere in the country. Yet, outside the greater south east, early years achievements are lower, along with GCSEs achievements, take-up of extracurricular activities, and on-the-job training.

Taken together, cities in the north and Midlands are at a clear disadvantage when it comes to making the most of the opportunities the future offers. And, if nothing changes, not only will cities trapped in low-skilled equilibria continue to do worse than their better-off counterparts, but the gap will widen at a faster pace.

How do we break the vicious cycle?

Improving skills is critical to creating positive outcomes for people and places, and therefore needs to be a key part of any wider strategy aimed at breaking the low-skilled cycle. That strategy should also look at the ‘offer’ places can make in terms of immovable infrastructure and office space in city centres that businesses seek out.

As far as skills are concerned, breaking this vicious cycle will require action on several fronts, both on the ‘demand’ side for skills among employers and on the ‘supply’ side among education providers. Ultimately, this means improving the quality, uptake, and use of education at all levels, from early years through to school and adult education.

Given the scale and urgency of the challenge, concerted effort is required both at a national and local level. Indeed, it is crucial places are not left alone to deal with these issues and that the national government adequately supports them with extra resources to tackle their challenges – this should be a key priority in next year’s Spending Review.

Cities, meanwhile, cannot wait for the government to take action. They should use the tools they already have to start working now on breaking the low-skilled equilibrium. Local stakeholders know all too well the importance of quality education being taken up by those who need it – and there are a lot of excellent initiatives already in place across the country.

Cities can build on this good work by setting up skills compacts to join-up efforts across their local areas – from early years through school and college to lifelong learning – building momentum to champion a step-change in attainment and engagement with education.

Often, however, upskilling is not the answer places want to hear because they fear their best and brightest will move away. It is indeed frustrating for Mansfield to invest in skills if individuals then move to Nottingham or to London to find job opportunities.

What if we don’t train them and they stay?

While some will continue to leave, some will stay. Developing the skills of young and older residents alike will complement demand-side interventions, helping places become more attractive to high-skilled businesses. This in turn will help places transition from a vicious to a virtuous cycle, with people moving to these places rather than moving away from them. 

On the other hand, cities know all too well what the costs of having an unskilled population are. Low-skilled people are less resilient to a changing labour market than high-skilled people, and they are four times more likely to be unemployed.

Not addressing this skills issue means that, in the long term, cities have to spend money on welfare and ameliorative public services to support their low-skilled population, rather than investing in their progression. 

The low-skill, low-investment, low-return cycle is a hard one to break, but while investing in skills will not guarantee the success of a place, not investing in people is an easy way to accelerate a place’s decline.

 

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