Local Enterprise Partnerships need to act to reinvigorate the private sector

Distilling machine CERAM Stoke-on-Tent

Weaknesses in the structure of the West Midlands economy mean that it was hit particularly hard by the recent recession and is likely to see further job losses over the next five years.

Our latest briefing paper (pdf, 408kb), produced as part of our West Midlands Skills Assessment 2010, reveals that the West Midlands has a weaker private sector than other parts of the country. The West Midlands has poorer representation of higher value added activities and high growth firms with the potential to create new, skilled jobs.

As a result the West Midlands has seen its share of jobs in the public sector rise more rapidly than anywhere else in the country. It is particularly vulnerable to job losses from the spending cuts announced by the government.

We forecast that West Midlands Gross Value Added (GVA) will grow by only 8% (£8.8 billion) between 2010 and 2015 and there will be a net fall in employment of more than 38,000 people.

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West Midlands particularly vulnerable to public sector job cuts

Public sector employment has grown significantly in recent years across the UK and has been the key driver of the economy’s expansion. But proposals announced by the government to make £83bn worth of cuts in public sector spending are forecast to lead to the loss of up to 600,000 public sector jobs across the UK over the next 6 years, according to a study1 by Oxford Economics.

The West Midlands economy is particularly vulnerable to the impact of the cuts. Between 1998 and 2008 (latest available figures), the West Midlands saw the most significant increase in dependence on public sector employment in the country2.

The share of jobs accounted for by the public sector increased from 22% in 1998 to 27% in 2008, a rise of 5 percentage points, bringing total public sector employment to some 637,000.

We forecast that between 2010 and 2016 there will be a net loss of nearly 50,000 jobs across the West Midlands and, based on the ratio of the number of private sector jobs dependent on public sector spending and the associated supply chain nationally, a further 310,000 jobs are at risk at private sector firms directly or indirectly reliant on public sector spending3.

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West Midlands monthly economic update report August 2010

The August 2010 economic update report (pdf, 482kb) from Advantage West Midlands is now available.

The report includes headlines and statistics, both national and from the West Midlands, on the state of the economy, inflation, the labour market, house prices, manufacturing, automotive, services sectors, construction, and retail.

The updates are published monthly here.

Unemployment in West Midlands fallen but still not back to pre-recession levels

Updated monthly data on the West Midlands labour market were released today by the Office for National Statistics.

Key headlines

  • Unemployment in the West Midlands has fallen — by 66,000 people over the last year, and 27,000 people in the last quarter. There are, however, 59,000 more unemployed people in the West Midlands than in February 2008.
  • Unemployment has fallen faster in the West Midlands than anywhere else in the country over the last year and in the last quarter. However, unemployment rose more sharply here than elsewhere earlier in the recession, so essentially this is a rebalancing of employment levels.
  • We’re not out of the woods yet. Employment levels have not yet reached their pre-​recession levels, and we’re expecting a significant loss of public sector jobs in the coming months, which could wipe out the recent drop in unemployment altogether.

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The multiple risk factors of worklessness

By isolating the ‘risk factors’ and certain combinations of ‘risk factors’ associated with a person’s chance of being out of work, new analysis from the West Midlands Observatory can help decision makers get to grips with the complex interplay of issues behind the current high rate of worklessness across the West Midlands.

The research is already informing the Department for Work and Pensions in its review of welfare policy, as it provides insights into the major factors influencing a person’s chances of being in or out of work. It shows that these chances can vary greatly according to the individual’s background and personal characteristics. The research demonstrates how combinations of factors such as having no formal qualifications or a long-term health problem or disability, or being a lone parent, affect a person’s chance of being out of work.

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Transformational change can generate substantial new jobs in West Midlands over next five years

The pace of economic growth in the West Midlands over the next five years is forecast to be modest. Only 11,000 net new jobs (representing growth of 5% in total employment) are expected to be created between 2010 and 2015.

However, the Observatory’s new report The West Midlands economy post recession: key issues and challenges (pdf, 844kb) includes scenarios illustrating the benefits for the West Midlands in terms of new job creation — if action is taken to support fundamental, transformational change.

Scenario one: up-skilling the workforce within existing businesses

If workforce skill levels in the West Midlands were raised to match the England average, it’s estimated that net increase in employment over the next five years would almost double to around 21,000 jobs.

The main beneficiaries would be sectors where skill gaps and shortages act as a significant constraint on growth, such as:

  • ICT
  • High value added business & professional services
  • Wholesale & retail distribution
  • Transport

Scenario two: up-skilling plus diversification of the economy

If more businesses in higher value added sectors and clusters were also attracted to the West Midlands, such that their share of GVA matched the England average, the impact would be much more significant with the creation of more than 200,000 net new jobs.

High value added activities such as high value added business & professional services (where more than 100,000 net new jobs would be created) and ICT (30,000 net new jobs) are notable beneficiaries.

There would also be modest increases in employment levels in engineering (nearly 3,000 net new jobs) and manufacturing (nearly 6,000 net new jobs).

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Read more about the future of the West Midlands economy in our report:

Replacement demand set to be key source of jobs in West Midlands over next 5 years

An under–representation of higher value added sectors means that the pace of economic growth in the West Midlands over the next 5 years is forecast to be modest. Only 11,000 net new jobs (representing growth of 5% in total employment) are expected to be created between 2010 and 2015.

But the Observatory’s new report The West Midlands economy post recession: key issues and challenges (pdf, 844kb) predicts an additional 860,000 job vacancies are expected to arise between 2010-2015 due to ‘replacement demand.’

It’s estimated that nearly 510,000 jobs (58% of all job vacancies) will be due to labour turnover and more than 350,000 jobs (40% of all vacancies) will be due to older workers retiring.

Pie chart shows overall job vacancies forecast in West Midlands between 2010 and 2015

Text description of this chart available. Chart prepared by West Midlands Regional Observatory based on Cambridge Econometrics forecasts and Office for National Statistics Labour Force Survey.

Replacement demand is forecast to be more significant in traditional private sector industries and public sector activities which have an ageing workforce. For example:

  • 59,000 vacancies are expected to arise in manufacturing
  • 50,000 vacancies are expected to arise in engineering
  • 37,000 vacancies are expected to arise in construction

In health and social care, meanwhile, nearly 70,000 vacancies are expected to arise. The figure is more than 45,000 in education and more than 30,000 in public administration.

Many of the jobs on offer due to retirements are likely to require specific skills, qualifications and experience. Around 90% of these jobs are expected to be filled by people already in employment.

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