Northern Economic Summary: June 2012Original
11 Jun 2012
The double-dip recession has hit the North hard, with unemployment rising and business confidence falling. This lack of confidence among employers has maintained the hiring freeze across the North, implying that upward pressure on unemployment is likely to continue for the rest of the year.
The unwillingness of employers to take on permanent staff can only increase economic insecurity of households and consumer confidence, threatening a vicious circle of low demand. There is evidence that unlike the 2008/09 recession, the double-dip recession this year has differentially affected different areas in the North, with the net effect likely to be an increase in inequality within the North.
A mixed picture for the northern regions in terms of output and employment…
The tentative signs of recovery picked up in the March economic report have failed to materialise into solid sustained growth. The latest figures on output and employment suggest that only the Yorkshire and Humber region has managed to keep its head above water, recording both decreases in unemployment and a Purchasing Managers Index score around the national average for output growth in the last three months, with new business continuing to increase (Markit/Lloyds TSB UK Regional PMIs, 2012).
By contrast, the North East looks to be contracting in economic output on the basis of the latest PMI figures; correspondingly, the latest unemployment figures in the North East show an increase in unemployment after a brief fall in the last quarter of 2011. The North’s largest region, the North West, also showed disappointing performance with the strong growth in output identified in the previous economic report failing to be maintained in the last three months. In addition, it shows unemployment rising while England overall recorded falling unemployment (chart 1). The threat of the eurozone crisis remains a threat to confidence in the North given that half of all northern exports are to EU countries.
...and as predicted in the previous economic report, the time people spending on the unemployment rolls growing as hiring falls...
This generally negative picture points to a lack of confidence among employers with a lack of hiring rather than an increase in lay-offs continuing to explain why unemployment is not falling. Almost half (47%) of those claiming JSA in the North have been doing so for over six months and the median duration of claim has grown substantially since the start of the year (chart 2). The period we are now entering (June–September) sees young people leaving school and university and looking for work. Given the lack of hiring in the North, this is likely to lead to a jump in youth unemployment as has occurred during this period in the last two years (chart 3a); it is unclear as to whether the measures introduced by the government to tackle youth unemployment will be sufficient to absorb the extra young workers entering the labour market. This implies that the gap between the North and other regions in terms of the percentage of young people not in education, employment or training (NEET) is likely to remain (chart 3b).
…where vacancies exist, they are associated with low paid, insecure work – a possible factor behind the squeeze on Northern household incomes...
Superficially, the vacancy data looks encouraging, with a 19 per cent rise in the number of vacancies notified to job centres over the last year in the North. However, in a pattern that is mirrored in the national labour market data (as identified in Dolphin 2012) the majority of these additional vacancies are either part-time, or ‘self employed’ vacancies (chart 4). Indeed, it appears that this is part of a longer term trend in the North of declining full-time employee vacancies as a proportion of all vacancies (chart 5). The decline of well paid, secure work is likely to be behind the recent finding that households in the North West and North East are facing the biggest squeeze on household budgets compared to other regions in the country, with household incomes falling by 8 per cent and 7 per cent in the last year (ASDA household income tracker, 2012).
…however, the negative picture is not uniform across the North - the apparent double-dip recession appears to have been avoided by some areas in the North and impacted heavily on others...
Although all areas in the North experienced rapid increases in unemployment at the start of the recession in the third quarter of 2008, not all areas have seen significant rises in unemployment during the most recent double-dip recession (chart 6) yet at the same time, 45 per cent of northern local authorities now have claimant counts that are higher than they were at any time during the 2008/09 recession due to the double-dip.
This suggests that the divergence in fortunes between local areas in the North has been exacerbated by the most recent downturn, especially as the areas that have seemingly been unaffected by the double-dip recession are those that were the least deprived areas prior to the double-dip (chart 7). This concurs with a recently published report that shows that the North contains some of the richest and poorest areas of the country, with all of the 10 most-deprived neighbourhoods being located in the North of England and three of the 10 least-deprived also located in the North (Church Urban Fund 2012).
Considering the trajectories of local authority claimant counts, three broad trajectories of local labour markets can be identified: those whose labour market never properly recovered after the onset of the 2008/09 recession (trajectory A); those whose labour market did recover but have now experienced a double-dip (trajectory B) and those that did recover and have not been affected by the double-dip (trajectory C). Chart 8 shows the trajectories of the claimant counts for selected local authorities that correspond to each of these trajectories, demonstrating the gap between local economies that the double-dip recession has opened up.
In the face of such growing inequality, targeted local initiatives need to be combined with a strategy to better connect up the leading and lagging areas of the North to achieve long-term and sustainable economic development in the North of England.
To that end, IPPR North recommends the following actions to build business confidence and stimulate economic growth in the North of England:
1. A targeted jobs guarantee
In line with previous IPPR work, we recommend the government should offer a guaranteed job, paid at the minimum wage or above, to anyone who has been unemployed and claiming JSA for more than 12 consecutive months. The guarantee should be matched by an obligation to take up the offer or to find an alternative that does not involve claiming JSA. This guarantee could be applied on a targeted basis: that is, in the form of a targeted jobs guarantee, for all people living in areas where the job density ratio is twice the national average.
2. Transport investment
Alongside skills and innovation, transport infrastructure is crucial for ensuring that the northern economy is the driver of national prosperity that it has the potential to be. Infrastructure investment can give an immediate boost to struggling local economies as well as providing a basis for sustainable economic growth.
As part of the government’s current HLOS2 and SoFA spending decisions, there should be a commitment made to boosting growth in the North of England by investing in five urgent rail priorities:
- Northern Hub: reduces travel times between Liverpool, Manchester, Leeds, Sheffield and Newcastle and increases capacity at Manchester Piccadilly at a cost of £560 million (£85 million already approved).
- HS2–Midland Mainline Connection: immediate benefit from HS2 Phase 1 to East Midlands, East Yorkshire and North East and reduces travel times between Newcastle, Sheffield, Derby at a cost of £30 million. Existing HS2 benefits increased by 20–25 per cent.
- Extending Transpennine electrification: maximises benefit of Manchester–York upgrade by connecting to Middlesbrough, Scarborough and Hull and reduces travel times between Newcastle–Manchester Airport, Hull–London plus reduces congestion on M62 at a cost of between £85–110 million, but would pay for itself over its lifetime.
- Improved rolling stock: enhances capacity and customer experience; increases cost efficiency and lowers carbon emissions and maximises benefit of Transpennine electrification while creating jobs associated with manufacture.
- Station improvements in Liverpool, Leeds and Sheffield: increases capacity at all stations, both passenger numbers and train journeys.
3. Local strategies for growth
To date, only two city deals have been signed off, in Liverpool and Manchester. Government must ensure the remaining deals are finalised as a matter of urgency so cities can redouble their efforts to improve economic growth in their areas and create much-needed jobs.
1. Changes in the unemployment rate Q1 2012 (percentage point) (Source:ONS) ^back
2. Median duration of JSA claim (of those still claiming JSA at end of month) in weeks by region (Source: NOMIS) ^back
3a. 3-month change (i.e. rolling quarter) in the claimant count for claimants aged under 19 (Source: IPPR North analysis of NOMIS data) ^back
3b. Percentage of 16-24 year olds Not in Education, Employment or Training (NEET) by region, Q1 2012. (Source: DfE) ^back
4. Composition of job-centre vacancies in the North, April 2011 compared to April 2012 (Source: IPPR North analysis of NOMIS data) ^back
5. Trend in composition of job-centre v+acancies in the North 2007-2012 (% of vacancies), (Source: IPPR North analysis of NOMIS data) ^back
6. Percentage change in claimant count April 2011 – April 2012 by local authority, (Source: IPPR North analysis of NOMIS data) ^back
7. Change in local authority claimant count April 2010 – April 2012 plotted against rank of local authority by 2010 Index of Multiple Deprivation, (Source: IPPR North analysis of NOMIS and CLG data) ^back
8. Index of the claimant count by selected local labour market (April 2009=100), (Source: IPPR North analysis of NOMIS data) ^back