What works for generating better jobs and greater earning power?

Following the success of our first series of workshops on how to develop effective local industrial strategies last year, we have been busy for the last few months running a second series with the support of the Cities and Local Growth Unit (CLGU).

Policy context

The government has committed to working with all places to develop Local Industrial Strategies by early 2020. These strategies will be developed locally and agreed with the government. They will map out distinctive strengths as well as local responses across the Industrial Strategy’s ‘foundations of productivity’.

We held four workshops in four different UK cities, each one focusing on one of ‘foundations of productivity’ – people, ideas, business environment and infrastructure – and its interaction with our foundation of interest, place.

Local Industrial Strategies

The Government’s Local Industrial Strategies Policy Prospectus (October 2018) set out two objectives. Government is committed to Local Industrial Strategies so that all places:

• Are able to increase productivity and realise their potential: building on well-evidenced and distinctive strengths aligned with the national Industrial Strategy.
• Set out the spatial impacts of national and local policy across our cities, towns and rural areas: informing priorities and choices and demonstrating how they will allow all communities to contribute to, and benefit from, economic prosperity.

The policy prospectus set out that Local Industrial Strategies will inform the approach of LEPs/MCAs to maximise the impact of future funding, including the UK Shared Prosperity Fund (UKSPF). The UKSPF will look to tackle inequalities between communities by strengthening the foundations of productivity. 

The first event in our series was held in Bristol and focused on people.

We heard from speakers from the Learning and Work Institute, West of England Combined Authority and Department for Education on how we can improve our local and national approaches.

The importance of people

Evidence suggests that improving the productive capacity of the people in a place is key to generating better jobs and greater earning power. And improving the skill levels of people is the best way to improve their productive capacity. Higher skilled people get better jobs, they earn more and they spend more in the local economy. In the UK, differences in individual skills levels explain at least half of the variation in area wages.

So from a place perspective, the most important thing to do to improve productivity, generate better jobs and greater earning power is to improve the skills of people.

What we know about what works

Relative to other policy areas, we know quite a lot about what works for improving skills in a place.

Some of the most important levers lie a little outside the traditional local economic growth policy space. For example, what happens in local schools can make a big difference, as can decisions around, e.g. housing, which might affect location decisions for high-skilled workers. But decisions around more traditional local growth policies matter too.

• For instance, for employment training:
• The evidence suggests that shorter programmes are better for less formal training and longer ones when the content is skill intensive.
• Similarly, employment outcomes seem to be better for schemes that involve training in-firm/ on-the-job rather than a classroom.
• Working with employers in scheme design can also help.
• Our apprenticeship toolkits provide similar guidance for those thinking about the design of those programmes.
• For those in work, our toolkits on in-work support and high involvement management practices summarise what we know about designing effective policies in those areas.

The most important principles to bear in mind

Our work on Local Industrial Strategies identified 10 principles to consider in designing effective strategies. Here’s an example for how just one of these plays out in thinking about skills policies.

When designing skills related interventions, it is important to clarify the case for intervention and identify whether the problem (or ‘market failure’) is on the demand-side or the supply-side. This will often require the analysis of local data and findings from this analysis should be borne in mind as areas develop, design and target the policy response.

For instance, if graduates don’t tend to get paid much more than non-graduates (i.e. there is a low graduate wage premium) this could suggest a demand side issue i.e. local jobs don’t require the skills of a graduate. Or it could reflect that the ‘quality’ of local graduates is low (perhaps because they have the wrong kind of degrees). In contrast, if the graduate wage premium is high, this could be because of strong local demand for graduates, or a good supply of high-quality graduates. In practice, both factors are likely to be in play.

Understanding the balance of factors will help determine the appropriate policy response: whether this is to attract higher quality graduates from elsewhere or to improve the quality of jobs in the local economy.

Things to bear in mind when articulating the policy response

Here are some of the most important things to keep in mind, which emerged from the presentations and the wide ranging discussions of the day:

1. Understanding the state of the place has to be the starting point. This means gathering evidence (both quantitative and qualitative) about the kind of jobs that are available within the local area, the skills needed to access them and the state of the skills of the workforce and how these are likely to evolve with technology. Using this evidence to identify both skills gaps and shortages is useful for targeting the policy response. The LWI have some excellent resources on how to go about this. DfE suggested enlisting the help of Local Advisory Panels.
2. While a good schooling system is important in laying the right foundations for a productive workforce, Local Industrial Strategies will need to move beyond this and focus on building a resilient workforce. This means supporting training and education for adults, which will become ever more important as technology changes the skills needed. It also means moving beyond traditional, formal qualifications and increasing the provision and take up of technical and vocational skills. This also represents an opportunity for places to align with national priorities.
3. There are some thorny issues that still need to be resolved at the bottom end of the labour market – long term unemployment, disability employment gap, lack of basic skills and qualifications, prevalence of low pay work to name a few (LWI presentation discusses these issues in detail). The interventions to address these will need a holistic, person centric approach that co-ordinates and tackles non-skills barriers such as child/carer needs and physical/mental health issues to be effective. We’re currently exploring some of these issues in our project on Disadvantaged Places.
4. Focusing on the bottom end of the labour market is a sharp tool for addressing inequalities and delivering productivity growth in an inclusive manner. For policies within strategies where inclusive growth isn’t the focus, it is still worthwhile to consider their distributional consequences. This can be done, for example, by identifying at-risk cohorts (e.g. those in minimum wage jobs) and assessing how they would be impacted by the intervention at hand. This is a simple but effective tool to keep this priority in mind without having to carry out detailed impact assessments. For instance, an intervention to encourage more able school leavers to take up part-time jobs to improve work-readiness is, on its own, a good idea. However, if done well, it could encroach on the type of jobs available to those at the bottom end of the skills spectrum. This isn’t to say that the intervention should be dismissed but rather that these tensions need to be understood and weighed up.

Things to do when implementing the policy response

Presentations from DfE and WECA, and subsequent discussions, also highlighted some key messages for implementation:

1. Engage with local partners. Working with local employers, anchor institutions and local people at the research stage is important for buy-in for the subsequent skills plan that will become a part of the Local Industrial Strategy. Joint design and ownership of the resultant interventions with the same set of stakeholders are critical to the take-up and the success of these programmes.
2. Make use of independent challenge panels. The policy area is fraught with well-informed and well-intentioned but potentially biased local players in the form of anchor institutions, universities and large employers. An independent challenge panel, akin to that convened by Greater Manchester is recommended. Our 10 principles, LWI and CLGU would all recommend this.
3. Finally, experimentation is not just tolerated but encouraged by Local Industrial Strategies. It is important to try new interventions and also to monitor and evaluate them, to improve our understanding and hence the long term effectiveness of these interventions.

Conclusion

The people foundation is extremely important on its own and inexplicably linked to the other four. Doing it right would have a significant impact on interventions around the other pillars.

A higher-skilled population is more likely to generate new ideas at the frontier and innovate and it is these ideas that create technologies and practices that are later developed, diffused and adopted as common practices that improve business efficiency. Firms also have a role to play here in investing in training and making sure that business practices make the best use of the skills available.

Our other sessions helped highlight these links and further reinforce the case for investing in skills as a key component of any Local Industrial Strategy.

All the presentations from the day can be obtained by emailing Lahari Ramuni at l.ramuni@centreforcities.org.