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What is the state of the local economy? Developing a granular understanding

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The Government expects all places to have agreed Local Industrial Strategies by early 2020. The ‘trailblazers’ – Greater Manchester, Oxford-Milton Keynes-Cambridge corridor and the West Midlands – are currently working with the government to agree their LIS by March 2019 and the next wave of places was announced in July. All places are being encouraged to think about their priorities for LIS in the meantime.

The crucial starting point for all places is a solid understanding of their strengths, weaknesses, and barriers to growth, as set out in our report on developing effective LIS.

Analysing trends in key indicators can be a good first step but, drawing on the recommendations set out in the report, there are several ways in which places might build on their existing evidence base.

Places are being encouraged to identify their comparative advantages and ‘leading sectors’. While we don’t think places should try and achieve a particular sectoral composition, analysing the sectoral composition of an area can help the design of cross-cutting policies, such as skills and employment training programmes, and facilitate coordination with national interventions.

Places should aim to understand sectoral nuances by taking account not just of sectoral shares in the local economy but also within-sector differences in productivity. In the sector of ‘information and communications’, for example, Slough is five times more productive than Hull, and in ‘production’ Brighton outperforms Wigan with a productivity difference of over £200,000. More data is available on this here.

Using fine-grained sectoral analysis to better understand how their area fits into larger value chains will help places to coordinate their own policies with national interventions and the Grand Challenges as outlined in the Industrial Strategy.

Unfortunately, simple summary statistics are not sufficient to develop a more granular understanding of the state of local economies, and particularly inter-industry linkages and spill-overs. There are also problems with an over-reliance on standard industrial classification systems, since codes do not fully represent the dynamism of a local labour market.

Therefore, the WWC report emphasises the need for new and alternative use of data to complement more traditional datasets. Innovative collection of data can refine the picture of firm characteristics and barriers to growth, including information on investment strategies, value chain linkages and firm diversity in the local area.

Discussions with local areas suggest that this kind of analysis is feasible but can be challenging. Places will need to take this in to account when deciding how strong a sectoral flavour to give to their LIS. We’ll publishing more on this shortly but in the meantime here are three examples of how this might be achieved:

  1. Using qualitative methods such as interviews, focus groups and surveys in the business community, places can identify barriers to growth. The London Business Survey, looking at business sentiment and perceptions, is a good example.
  2. Administrative data, such as tax records, and ‘big data’ from web-based firms can be used to complement traditional survey data. Smart meter data for energy use, Zoopla data for housing market trends and Twitter data for demographic statistics are some examples of emerging data that could be used to improve detailed analyses.
  3. Sharing data between places can help build understanding of investment flows and supply chains across administrative boundaries. This report looks at information sharing, collaboration and partnership between London, the South East and East of England to understand spill-over effects and interlinkages.

A thorough understanding of the state of the local economy is crucial for devising an effective and well-targeted LIS. These approaches could help places to take advantage of good sectoral analyses, using new and alternative data sources to achieve fine-grained analyses.