Insights
Last month the government published new guidance for Mayoral Strategic Authorities on Local Growth Plans. These are a key foundation of the new Industrial Strategy and the government’s ambitions for devolution, as well as an important part of the Growth Mission.
The success of Local Growth Plans will to a large extent depend on whether they can add up to more than the sum of their parts, bringing in more investment, jobs, businesses and other forms of economic activity.
A key part of building strategies to do this is assessing the potential multiplier effects of different local economic interventions. Multipliers are a concept used by economists to capture the knock-on effects of increased activity in one part of the economy, for the rest of the economy, and can give an estimate of the benefits a project or intervention can bring above and beyond the direct jobs or investment it involves. Our core concepts blog on understanding multipliers goes into more depth.
We have recently published a new rapid evidence review on multiplier effects from changes in local public spending, which complements our existing toolkit on local employment multipliers. Both are available here. Multipliers are usually derived from input-output models, but the approach our resources take is summarising findings from robust impact evaluations of past interventions to understand the multiplier effects of different policies. This provides a range of multipliers that can complement those derived from other methods.
What can the evidence from these tell us about projects for Local Growth Plans? The first thing to say is that the evidence suggests increases in public spending do translate into more jobs, and potentially higher earnings, in local economies. A lot of the evidence for this comes from stimulus spending, which is different from some of the types of approaches that may be employed in growth plans, but this still demonstrates an ability for public investment to generate returns above and beyond its direct effects.
The other key finding is that employment multipliers are bigger for high-skilled tradeable sector jobs compared to tradeable jobs in general. For each high-skilled tradeable job created directly by a new project, there are 2.5 other jobs created indirectly in the non-tradeable sector of the local economy. For tradeable jobs in general there are 0.9 non-tradeable jobs created indirectly.
Policymakers often target high-skill tradeable employment anyway for other reasons, but this underlines the wider benefits which can help make the political argument. More investment and jobs in high-skilled sectors means more spending and jobs in non-tradable services like cafes and restaurants, arts venues, gyms and more.
You can read more detail on the evidence on multipliers in our dedicated page, and our policy challenge pages on supporting local business investment and Local Growth Plans also pull together useful resources on these topics.
