04Conclusion and Implications
Cities play an important role in their national economies and the wider European economy too. This is most clearly seen in the UK – UK cities play a bigger role within their national economy than cities in other European countries do, and as a group they account for the largest share of Europe’s urban economic output.
However, UK cities lag behind their continental comparators on a range of indicators – the majority trail behind on skills, innovation and productivity. The poor productivity performance of UK cities, a result in part of larger shares of residents with few or no qualifications and lower levels of innovation, needs to be tackled for two main reasons. Firstly, it limits the wages that workers are paid and the living standards that they enjoy. And secondly it acts as a drag on the future growth of UK cities and in turn the national economy.
Given this, three main challenges emerge for policy when attempting to tackle the poor productivity performance of UK cities:
1. UK cities need to compete in the knowledge economy if they are to be successful
The cost of doing business in UK cities relative to cities in Eastern Europe in particular means that it is much harder to compete for low skilled work. For instance, the cost of labour in Bulgaria is more than six times lower than in the UK. UK cities will need to compete primarily on high-skilled work – be that services or manufacturing – if they are to be successful.
This means many cities, particularly in the North of England, need to improve their levels of high skilled jobs. They have small shares of business services jobs in their cities, low levels of patent activity and large numbers of residents with few or no formal qualifications.
They will be in a stronger position to compete for international investment if policy can help make these cities more attractive to investment from businesses in higher-skilled, better-paid activities.
2. Low skills is a stand out problem
A major factor in a business deciding where to invest or where to expand is whether it can recruit the workers that it needs. The data above shows that UK cities are at a disadvantage when compared to many other European cities on this measure.
In terms of the share of people with degrees, several UK cities compare favourably. But this isn’t the case for low skills, where it appears that other countries have been much more successful at supporting their residents to achieve mid-level qualifications (equivalent to GCSEs and A-levels) than the UK. And it is at this level that UK policy should be targeted to improve its poor attainment.
3. Making the most of big cities
Low productivity is a problem for all UK cities. But it is particularly problematic for the UK’s larger cities, which appear not to be capturing the benefits of agglomeration (the process by which concentrating economic activity in one place increases productivity) that other large cities on the continent do. This is particularly an issue given that knowledge-based industries are the ones that stand to gain the most from the benefits of agglomeration.16
To make the most of their size, policy needs to help facilitate two key elements of agglomeration. The first is to encourage ‘knowledge spillovers’ – that is the availability and spreading of information that occurs when businesses locate close to one another. This requires planning policies that understand the roles of different parts of cities, encouraging the creation of commercial space in dense city centres.
The second is to increase the size of the pool of workers that businesses can recruit from. This requires investment in transport within cities and their wider areas to better link jobs in city centres in particular to residential areas in suburbs and hinterlands, coupled with steps to improve the skills of residents.