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Ian Brinkley
Economic Advisor
Ian Brinkley

The recovery and North - South divides

Authors: Ian Brinkley

12 June 2014

The national labour market picture in yesterday’s news was almost too good to be true. As many have pointed out, more jobs, lower unemployment and falling real wages suggests that all is not well – unless you take a fundamentalist view that people are pricing themselves back into work. But there is also a major divide opening up between a job rich recovery in the South and the rest of the country.

I took the opportunity provided by new estimates of workforce jobs for the first quarter of 2014 to see what has been happening to regional job creation between March 2010 and March 2014. The workforce jobs measure – employees, self-employed, government schemes, and HM Forces – shows an increase in employment across the UK of just over 1.7 million or 5.5 per cent.

Across the three most prosperous regions – London, South East, and Eastern – 1.2 million jobs were created or 70 per cent of the total. London led the way with an increase in employment of just over 700,000 or 15 per cent, followed by Eastern at just under 8 per cent, and the South East at just under 7 per cent.

In contrast, across the three regions of Northern England - North East, North West, and Yorkshire and Humberside - total job creation was just 145,000 or just over 2 per cent. There were some contrasts – the North West put in a respectable performance with growth of nearly 5 per cent, Yorkshire and Humberside grew by a modest 2 per cent, but in the North East employment went down by just over 5 per cent.

The picture becomes wildly unbalanced when we look at employee jobs. Across the UK employee, employment has gone up by nearly 1.1 million or 4 per cent. The three lead regions of Southern Britain generated just over 1 million new employee jobs while the three regions of Northern England produced just 6,000 – with a big fall in employee jobs in the North East almost offsetting modest employee job gains in the North West and Yorkshire and Humberside.

The picture elsewhere is more mixed –but still lagging well behind Southern England. Total employment went up across the Midlands, Scotland, and the South West by between 3 and 4 per cent, by just over 2 per cent in Wales, while total employment went down in Northern Ireland. In Wales and the South West, however, employee jobs fell.

If employee jobs are so tilted to parts of Southern England, it must follow that a better balance exists for self-employment – indeed, it has been the only source of job growth in the North East, Wales, and the South West.

Overall, self-employment by this measure increased by just over 720,000 or 19 per cent. London still came out top, but otherwise the biggest rises have been in the North East, the North West and the South West.  However, even on this measure, self-employment increased slightly faster in the three prosperous Southern regions (22 per cent) compared with the three Northern English regions (20 per cent). The big difference is that while Southern England has also produced large numbers of employee jobs, the Northern regions overall did not.

There has been much debate about how much of the self-employed boom has been driven by lack of alternatives and how much by genuine choice. One-off surveys suggest that in recent years the majority have gone into self-employment out of choice. In reality, push and pull factors are at work, and in regions with no or very weak employee job generation the push factor is likely to be more significant than in areas where employee jobs are more plentiful. It is unlikely that we have seen a sudden rekindling of the entrepreneurial spirit in the North East, where self-employment grew by 29 per cent, but not in Yorkshire and Humberside which saw only an 11 per cent increase.

In the official Labour Force Survey we have questions asking whether people have taken temporary work because no permanent jobs are available and also whether they work part time because no full time jobs are available. In an ideal world a similar question would be asked of the self-employed. 

The above analysis is of course a broad generalisation. There are many localities in Southern England suffering from a lack of jobs and many areas in the North and elsewhere that are successful and prosperous. Even at the regional level we can see marked contrasts between, say, the North West and the North East. But the broad picture strongly suggests there are too many localities struggling to produce new jobs in Northern England compared with the South.

This in turn has two implications for policy. Firstly, government efforts to rebalance the economy away from an excessive dependence on London and the South East have not as yet proved very successful, at least when measured by overall job generation. Secondly, there is clearly a lot of unused capacity in the less successful regions, so a more balanced regional recovery would help reduce policy maker’s fears over the sustainability of the national recovery.

There are some important caveats, as ever. Some of the government’s policies are longer term so their full impact may not yet have been felt. Moreover, until recently economic growth was weak and we would expect some of the benefits of faster national growth rates to spread to all parts of the UK over the next few years.

 In his first speech as Prime Minister in 2010, Mr. Cameron said:

Today our economy is heavily reliant on just a few industries and a few regions– particularly London and the South East.  This really matters. An economy with such a narrow foundation for growth is fundamentally unstable and wasteful – because we are not making use of the talent out there in all parts of our United Kingdom.

This analysis was right then and it is right now. However, without more effective ways to increase job generation in some localities and making it easier for people to move to where the jobs are, the Coalition will continue to struggle to find a lasting solution to regional imbalances.