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Does economic growth benefit those in poverty?

Authors: Ceri Hughes Ceri Hughes

07 February 2014

A new report today highlights the fragile relationship between economic growth and poverty reduction in British cities.

With cities being given additional powers to drive growth in their area, there is a need to understand how economic growth impacts on local people living in poverty. The well-worn assumption is that the benefits of economic growth will trickle down to people in poverty. But the way that this might occur is not always clear. This uncertainty is compounded by the absence of a consistent local income poverty measure that can track how households in poverty fare over time.

Our research explores the links between growth and poverty in British cities using a number of proxy measures of poverty at a city-level. Focussing on the period between 2000 and 2010 we find that:

  • Economic growth is not necessarily associated with a drop in poverty rates at a city-level. Looking at change over time there is no consistent relationship between output growth and poverty reduction. We find that the type of growth and sectors in which growth occurs matter.
  • Employment growth was positively associated with poverty reduction in the 2000s, with the largest falls in the proxy measures occurring in some of the larger and poorest cities. We also find that people with lower skills were more likely to be in employment in cities which saw stronger employment growth.
  • But economic growth may also have some negative impacts on people in poverty. Output growth is positively associated with growth in house prices, raising housing costs for people on low wages. Whilst low wage workers tend to earn more in cities with higher levels of growth, it is not clear whether these higher wages compensate for the increased cost of living in such cities. This is particularly unlikely in cities with very high house prices, such as London.

These findings underscore the need for clearer links between growth and poverty agendas at a city-level. Many of the key policy levers that impact on the lives of people on the lowest incomes are beyond the reach of cities, with the design and relative generosity of the benefits system determined centrally. But there are a number of ways that local actors can seek to reduce poverty whilst driving growth forward.

The strengthening of economic growth in the last year is good news. But, as this paper finds, closer attention needs to be paid to the ways that growth impacts on people in poverty.

The main report is formed as part of three evidence papers which consist of the literature review (Evidence Paper 1), data analysis (Evidence Paper 2), and case studies (Evidence Paper 3).

Read  Katie Schmuecker's blog, 'We need laser-like focus on better jobs in our cities'.