02The economic geography of Midlands Engine
Different places play different roles in the Midlands Engine economy. It is a diverse region of cities, large towns as well as their suburbs, urban hinterlands, and rural areas. Each of these areas play distinct roles in the local and, by extension, national economies.
The economy of the Midlands Engine is ‘spiky’
The economy of the Midlands Engine is very much concentrated in and around its cities and large towns. Figure 2 shows in dark green the eight urban parts of the Midlands Engine – the Birmingham conurbation, Nottingham, Leicester, Derby, Stoke, Coventry, Telford, and Mansfield – and the height of the columns corresponds to the number of jobs within each neighbourhood (MSOA). Despite accounting for 10 per cent of the region’s land area, 53 per cent of employment is clustered within cities and large towns.
Figure 2: The geography of jobs in the Midlands Engine by medium super output area (MSOA), 2021
The city centre of the Birmingham conurbation is the most concentrated employment site in the Midlands Engine, accounting for three per cent of the total number of jobs in the region while accounting for just 0.02 per cent of the Midlands Engine’s land area. This is as many jobs as there are in all of Shropshire, demonstrating the important role of Birmingham city centre in the regional and national economy.
Manufacturing and service exports are found in different parts of the Midlands Engine
The pattern of total employment masks differences in where ‘exporting’ firms choose to locate. Exporters are those firms that sell beyond their local market, including to other markets in the UK as well as abroad. As they can theoretically locate anywhere (because they are not tied to any one market) and are disproportionately responsible for productivity growth (see Box 2), understanding their locational choices is particularly important.
Box 2: Why exporters drive local economies
Previous work by Centre for Cities has shown that businesses that are more likely to sell beyond their local markets2 – such as car manufacturing, publishing, and graphic design companies – are central to the performance of an economy for two reasons. The first is that they are more productive than those that focus on local services, such as retail, restaurants, or gyms. It is the variation in the performance of this export base that is the cause of the variation in productivity seen across the country (there is much less variation in the productivity of local services).
The second is that these exporting businesses are disproportionately responsible for productivity growth in the national economy. Between 1990 and 2017, productivity more than doubled in the manufacture of computer and electrical equipment and information and communications and tripled in chemicals and pharmaceuticals. By way of contrast, it increased by just two per cent in accommodation and food services, and declined in arts, entertainment and recreational services.3
The Midlands Engine has a greater specialisation in manufacturing exports compared to the rest of Great Britain. Seven per cent of jobs in Great Britain are in the manufacturing sector, but in the Midlands Engine it is almost 12 per cent of all jobs. In contrast, 15 per cent of jobs in Great Britain are in service exporting work, but it is 11 per cent in the Midlands Engine.
Figure 3 shows there are large concentrations of manufacturing activity on the fringes of and outside of urban areas, which means that cities and large towns account for 46 per cent of manufacturing employment in the Midlands Engine, lower than their share of all jobs.
Splitting the Midlands Engine into four areas – city centres, suburbs, hinterlands and rural (see Box 1 for definitions) reveals a preference for a suburban or hinterland location among these businesses. Figure 5 shows that of those manufacturing jobs outside of urban areas, 43 per cent are in the urban hinterlands, and the remaining 11 per cent are in rural areas of the Midlands Engine.
Figure 3: The geography of manufacturing jobs in the Midlands Engine by MSOA, 2021
In contrast, service exporters are much more clustered in cities and city centres in particular (see Figure 4). In total, 53 per cent of service export jobs of the Midlands Engine are in cities and large towns. Figure 5 shows that city centres alone are home to 11 per of service export jobs, and Birmingham city centre accounts for six per cent. The hinterlands are home to 41 per cent of service sector employment while just six per cent of these jobs are in deep rural areas.
Figure 4: The geography of service export jobs in the Midlands Engine by MSOA, 2021
The result is that the industrial structures of the city centres, suburbs, urban hinterlands, and rural parts of the Midlands Engine look very different. The area’s export base in particular shows a preference for an urban location.
The geography of the Midlands Engine Economy is shaped by agglomeration
These patterns occur because different places inherently offer different benefits to exporting firms. Cities, and especially city centres, offer access to a large pool of workers and access to knowledge through face-to-face interaction with clients, collaborators, and competitors – known as agglomeration effects – as discussed in Box 3.
Box 3: The benefits of agglomeration
There are three main benefits that agglomeration offers:4
- Sharing: The ability to recruit from a larger pool of workers with relevant skills.
- Matching: The ability to share inputs, supply chains and infrastructure, such as roads, rail and street lights.
- Learning: The ability to exchange ideas and information between co-operating and competing firms, known as ‘knowledge spillovers.’
Knowledge spillovers are particularly important for service exporting firms as they increase innovation and therefore productivity for these highly competitive firms. This is because knowledge – more specifically, tacit knowledge – is best spread via face-to-face interactions. And these face-to-face interactions are more likely to occur over much smaller distances and in more dense areas where both formal and informal meetings are more likely to come about.5 Within a city, this area is the city centre.
Table 1: Midlands Engine working from home patterns
|UK Average (%)||East Midlands (%)||West Midlands (%)|
|Travelled to work only (able to homework)||10||11||10|
|Travelled to work only (not able to homework)||46||50||50|
Source: Characteristics of homeworkers, Great Britain, Opinions and Lifestyle Survey, ONS (2023)
The pandemic has also changed the way that workers view their commutes. Currently, three quarters of workers want to have a commute that is under 30 minutes, while only 57 per cent currently do.6
Property market data has shown that despite tenants preferring to use smaller workspaces since the pandemic, office occupancy levels reached a post-pandemic high in 2022, largely due to large uptake by the technology, media and entertainment, and telecommunications sector.7 As a result, Birmingham’s city centre prime rent is forecast to grow by almost 35 per cent between 2019 and 2025.8 If this forecast comes to pass then it would indicate that firms continue to be willing to pay the premium to locate in city centres and that despite a rise in hybrid working, cities will continue to be centres of production for the Midlands Engine.
The Midlands Engine’s urban economies support jobs for people who live outside of urban areas
Even though urban economies are the main centres of production in the Midland Engine, the prosperity and opportunities generated within them is not limited to urban residents. The economic benefits they provide are felt outside their boundaries and enjoyed by residents of urban hinterlands and rural areas. Figure 6 illustrates the share of non-urban residents who work in the Midlands Engine cities – almost one in five workers in the Midlands Engine who lives outside an urban area works in one of the region’s urban economies. Box 5 discusses the role of smaller urban areas in providing employment to people outside their boundaries.
Figure 6: The Midlands Engine's cities provide jobs for people who live outside cities
This in turn means that urban economies of the Midlands Engines depend on their hinterlands for workers. In total 13 per cent of the urban workforce comes from outside of the largest built-up areas. Of these, the economies of Mansfield and Coventry rely the most on workers who live outside the built-up area, with 22 per cent and 21 per cent respectively doing so.
Box 5: The role of smaller urban areas in the economy of the Midlands Engine
While the eight cities and large towns of the Midlands Engine (with a daytime population of more than 135,000) play an outsized role in the regional and national economy, smaller settlements also make important contributions to their local economies. These roles are distinct from those of the large urban areas.
Eight urban areas in the Midlands Engine have daytime populations of between 40,000 and 135,000.9 These places (including the civic cities of Lincoln and Worcester, and the towns Grimsby, Royal Leamington Spa, Burton upon Trent, Chesterfield, Shrewsbury and Scunthorpe) are significant local employers. They account for 2.4 per cent of the Midlands Engine’s total area, but 10 per cent of total employment.
Like their larger neighbours, they play an important role in providing jobs in the more rural parts of the Midlands Engine. Figure 7 shows that they fill in some of the gaps that larger towns and cities do not reach in Figure 6. However, their labour markets are much smaller than those of the cities and large towns, meaning they do not provide jobs to people living outside their boundaries or to the wider Midlands Engine at the same scale.
Figure 7: Commuting patterns around smaller urban areas in Midlands Engine
Source: ONS Business Register and Employment Survey (2021)
In addition, their share of the Midlands Engine’s exporting employment is smaller than employment as a whole – only eight per cent of service export employment, and nine per cent of manufacturing employment are in these towns. Figure 8 shows that, with the exception of Leamington Spa, all of these towns provide fewer exporting jobs than the average for the Midlands Engine.
Figure 8: Most smaller urban areas have a greater reliance on the public sector compared to cities in the Midlands Engine
Source: ONS Business Register and Employment Survey (2021)
In contrast, the public sector is a larger employer than average in all these towns except Leamington Spa and Burton upon Trent – in Scunthorpe and Shrewsbury, 44 per cent of jobs are provided by the public sector compared to the Midlands Engine average of 29 per cent.
The smaller urban areas of the Midlands Engine are important centres of local employment and service provision, but they do not play the same exporting role that larger urban economies play in the Midlands Engine or the national economy.
Cities and large towns do not just offer access to jobs, however; they offer access to higher-paid jobs. Figure 9 shows the difference between workplace and resident wages across the local authorities of the Midlands Engine. Where workplace wages are higher than resident wages, commuters to those local authorities are enjoying a wage premium over residents.
Figure 9: Difference between workplace and residential wages across the Midlands Engine local authorities
Local authorities with city centres in their boundaries, marked in light green in Figure 9, offer a particularly strong mix of these benefits to workers. Accordingly, while 7 out of the 8 core urban local authorities in the Midlands Engine have higher workplace wages than resident wages, only 5 out 13 of suburban local authorities in dark green do, as do 7 out of 45 of non-urban local authorities in purple.
This shows that the agglomeration benefits of Midlands Engine cities and large towns translate into higher wages for workers. And by commuting to cities and large towns residents of non-urban areas enjoy the benefits of living outside of urban areas and the benefits of working within them. Accordingly, a commuter from Lichfield to Birmingham earns an estimated average annual boost to incomes of £3,900, a 15 per cent increase, compared to if they took up a job in Lichfield.
The Midlands Engine has at least eight different urban economies
Commuting patterns also show that the Midlands Engine comprises a number of distinct urban economies rather than one whole economy. This can be seen in Figure 10, which illustrates with commuting patterns that the Midlands Engine is composed of eight individual urban labour markets, with little commuting between these areas (as is also seen both elsewhere in the UK and in Europe).10
Figure 10: There is little overlap in urban labour markets, as is seen elsewhere in the UK and Europe
In summary, the Midlands Engine is made up of a series of economies, with production clustered in and around the largest cities and towns. This brings opportunity not just for those people who live in these places, but those living within commutable distance too. How well these distinct local economies perform, and which has the greatest potential for improvement is the subject of the next section.