For Local Authorities, building a successful strategy for local economic growth is essential. In fact, with central funding being phased out and councils up and down the country having to rely more on business rates than previously, growing existing sectors, as well as attracting new businesses, is now imperative. But how can you build a successful strategy?
Key to achieving this is the use of good insight about your local economy, including what is currently driving it, what are its specialisms, and how it is projected to change. Of course, merely having this sort of insight is no guarantee of building a sound strategy, yet it is equally true to say that without it, the chances are going to be much lower. Put simply: the better the evidence you have about the state of your local economy, the greater the chance of creating a growth strategy that will meet your goals.
The purpose of this three part series is to show you how Labour Market Insight (LMI) can be used to better understand your local economy, so that you can create an evidence-based growth plan and business attraction strategy:
Part 1 – Shows you how LMI can help you very quickly identify the industry clusters in your local economy that present you with the best growth opportunities
Part 2 – Demonstrates how you can dig deep into the data to unearth a wealth of insight about the industries in your local economy
Part 3 – Gives you a number of ideas as to how you can use the type of insight presented in Parts 1 and 2 to develop an evidence-based local growth strategy.
Issues such as Brexit, automation and low productivity, mean that the labour market is likely to go through a period of intense disruption. In such times, it is vital to ensure that your economic growth strategy is based on solid evidence about your region. This series shows you how this can be done, and we hope it will be useful to you as you seek to bring prosperity to your region.
Identifying Opportunities — Quickly
A good starting point in building an evidence-based growth strategy is to begin by identifying those sectors that can be considered strengths, those that might be seen as being under threat, and – most crucially of all – those that give your area its best opportunities for growth. But how can this be achieved?
Most Local Authorities will have some sort of idea of these things, perhaps gathered anecdotally from interaction with employers and various stakeholders in the area. But for a more scientific approach, we must turn to data.
There is, however, a big problem with this. According to the Government’s Standard Industry Classification (SIC), there are 569 different industries, and trying to get your head around them is no easy task. In addition, datasets dealing with industries tend to lack the granularity needed to identify trends at the Local Authority level.
Our data overcomes both of these issues. Firstly, over the years we have created a methodology which takes Government datasets on industries and occupations, and which layers them together to produce a complete and holistic view of the labour market, down to the level of Local Authority. More recently, we have created a methodology that takes the 569 4-Digit SIC definitions, and groups them together into 49 “economic industry clusters” on the basis of certain shared characteristics, such as a similar workforce, supply chain connections and a tendency to co-locate in the same areas.
What this means is that not only is the industry data far easier to navigate than trawling through all 569 industries, but this can also be done quickly and simply for your Local Authority economy. To show you what we mean, let’s use Reading Borough Council as an example. On the chart below, we have included all 49 of the clusters in the region (although for reasons of space we have highlighted only Professional Services):
Local and Tradable Clusters
The 49 clusters have been divided into local and tradable, of which there are 14 of the former and 35 of the latter. These are defined as follows:
Local Clusters – Made up of sectors which tend to serve local needs, and which don’t have much in the way of national or international exports, such as retail, health and schools, for instance.
Tradable Clusters – Made up of industries that tend to export both nationally and internationally. Examples include activities such as manufacturing, business services and professional services.
The reason we have made this distinction is that whereas local clusters tend to employ the most people in any area (represented by the size of the bubbles on the chart), the drivers behind economic growth in an area tend to be the tradable clusters, since these are the ones that generally speaking trade outside their region, whether nationally or internationally. In terms of planning a growth strategy, the tradable clusters will therefore tend to be of the most interest.
Location Quotient and National Growth
As stated above, we have measured these clusters according to two metrics: Location Quotient (LQ) and national job change from 2017-2020. LQ is a measurement of the concentration of a cluster in an area, with numbers over about 1.2 indicating a high specialisation of that cluster in the area. So the further to the right a bubble is on the chart, the more the region has a comparative advantage in that sector over other areas of the country. National job change uses our trend based projections to show how much a particular cluster is likely to grow across the country over the next few years.
Strengths, Opportunities and Threats
By plotting LQ against projected national job change, we can get a sense not only of which sectors an area has a comparative advantage in, and so are crucial to a local economy, but also whether they present opportunities or even risks over the coming years, depending on whether the cluster as a whole looks likely to grow or shrink. As you can see from the bubble chart, we have sorted out the clusters in terms of Strengths, Opportunities and Risks, which are defined as follows:
Strengths: Industries that are growing nationally, and in which the region has a comparative advantage over other areas of the country, meaning that it is well placed to benefit from that growth.
Opportunities: Industries that are growing nationally, and in which the region has a healthy presence rather than a comparative advantage, so presenting potential for growth.
Risks: Industries in which the region enjoys a comparative advantage over other areas, but which are set to decline nationally in the coming years, indicating that they may be under threat.
How can This Help us?
Looking at the bubble chart once more, you will notice that the cluster we have singled out is Professional Services. The reason for this is that although it falls into the Strengths quadrant, on account of having a Location Quotient of just over 1, the fact that it is only 1.09 indicates that the comparative advantage Reading has in this cluster is minimal. It is, however, projected to see growth across the nation as a whole of over 6% between 2017 and 2020, which means that it is very much a cluster of interest in terms of a potential growth strategy in the area.
But in order to start building a solid, evidence-based growth strategy around the Professional Services cluster, we would need to understand a lot more about it than simply that it enjoys a slight comparative advantage, and is expected to grow nationally. Our data allows us to do just this, and we’ll take you thorough how this can be done in Part 2.
We’d love to hear about how you are attempting to build a strategy for growing your local economy, and whether our insight might be able to help.