Econ Insights: The Left Behind Index
In this series, we look at interesting data sets to uncover hidden insights.
The idea of 'left-behind' places has become a bit of a cliché in recent years, wheeled out to explain Brexit, changing social attitudes and divergent economic outcomes. It is used to describe everywhere from South-East coastal towns, South-Wales mining communities and the deindustrialized North-East.
In order to assess if the idea of 'left-behind' places has much merit I began by constructing an index using local authority level data. The index was composed of 4 measures:
Percentage of working-age population without a degree (NQF Level 3 and below)
Percentage of working age population working in low-skill occupations (6 Caring, leisure and other service, 7 Sales and customer service, 8 Process, plant and machine operatives, 9 Elementary occupations)
Gross Value Added per worker
Median Hourly Wage
Each measure was baselined at 100 by dividing by the maximum value, the positive measures (GVA, median pay) subtracted from 100. All measures were weighted equally. The overall index was constructed by adding the values for each of the 4 measures. Inner London was excluded from the analysis due to its distorting effect.
Note: Hold shift to move around map. Local Authorities in the upper 25th percentile of the index are highlighted in red.
The results can be broken down into rural and urban areas. These have somewhat different characteristics. Rural areas tend to suffer from low productivity and have low median hourly earnings. However, they tend to have relatively higher levels of qualification and lower levels of unskilled employment. This is likely due to the higher numbers of skilled tradespeople associated with agriculture and ancillary businesses. In contrast, urban areas tend to suffer from low skills, low productivity and low wages.
It may be more appropriate to think of 'left-behind' places as an urban phenomenon given the differences between rural and urban economies. Filtering out rural areas leaves a patchwork of coastal towns along the south and east coast, a cluster of red in the ex-mining communities of South Wales along with several towns in the Midlands. Moving north, a thick belt of ex industrial and mining towns stretches across South Yorkshire and Lancashire, with a similar picture in the North East.
Urban 'Left-Behind' Places
Why do these areas under perform economically?
Many of these towns had an industrial past followed by rapid deindustrialisation in the 1980s. Without those anchor 'export-led' industries demand for local services declined and the local economy fell into a depression. Those who have skills and qualifications, especially the young, migrated to more prosperous areas leaving those with fewer skills. This process of residualisation only acted to make the areas even less attractive to potential businesses.
Over time high-levels of unemployment gave way to low skilled work. Firms established warehouses and distribution centres employing large amounts of unskilled workers on minimum wage in poor quality jobs.
Economic development is highly path dependent, without attracting strong dynamic businesses which both create demand for and generate human capital many of these areas will struggle to escape the low skill-low productivity-low wage trap.
Is there anything governments can do? The short answer is no, not really. High-value knowledge-based industries require a highly skilled workforce and benefit enormously from agglomeration externalities associated with locating in a thriving, dense urban cluster. The dynamics of the manufacturing in the era of globalisation have not fundamentally changed since 1980's. For the UK to compete in manufacturing we have to produce high-value, precision manufactured products, these firms are employing engineers and skilled technicians not low skill labour. Whilst any opportunities to generate high-value jobs should be taken it is important to recognise the structural forces which limit the long-term economic potential of many of these towns.