State of the D2N2 Economy 2015

Transcription

1 D2N2 Local Enterprise Partnership State of the D2N2 Economy 2015 Final Report

2 Contents 1 Introduction Employment and Sector Trends Business Base and Enterprise Innovation Employment and Skills Productivity and Prosperity Health, Social Inclusion and Sustainability Indicators Comparator LEP Analysis Conclusions ekosgen State of the D2N2 Economy Final Report December

3 1 Introduction The State of the D2N2 Economy report provides an annual review of the trends affecting the D2N2 economy, and the progress being made towards the targets set by the D2N2 Local Enterprise Partnership in its Strategic Economic Plan. This year, the State of the Economy report covers a range of social and environmental indicators in addition to the economic analysis presented previously. This reflects D2N2 LEP s commitment to sustainable, private sector-led growth and job creation, which benefits all of D2N2 s residents. The report focuses on the four key areas being monitored by D2N2: The Economy, Health, Social Inclusion and Sustainability. The key indicators being monitored under each of these areas are shown in the table opposite. Through its actions and its investments, D2N2 LEP seeks to influence all these indicators and move the D2N2 economy towards long-term, private sector-led, sustainable economic growth. Through the Growth Deal investments, the Unlocking Investment for Growth RGF programme and the Growing Places Fund, as well as through its strategic influencing and lobbying role, the LEP has contributed to the progress seen in the local economy. UK Economic Context The UK economy has grown strongly in recent months, and the outlook is positive, with forecasters expecting annual growth in the region of 2.5%, and 2.3% in The recovery in recent years has been driven largely by the service sector, although both the manufacturing and construction industries have contributed to growth. The UK s performance will be strongly influenced by international factors, and there are a number of uncertainties which pose a risk to the UK s growth rate, not least the uncertainties affecting the eurozone. However, the UK would benefit if the global economic environment improves. Economic growth has been boosted by lower oil prices, and by the continued low level of consumer price inflation. Despite this, the strengthening economy means that interest rates are likely to rise, both in the UK and the US, in the first half of The recovery has been uneven, with London driving job creation and a widening divergence in employment, business and population growth rates between southern cities and the rest of the UK. In D2N2, data from the Chamber s Quarterly Economic Survey illustrates growing confidence amongst the business base, after a slight faltering of confidence levels in the latter half of A large majority of businesses are expecting turnover and profits to increase over the next twelve months, with half reporting increased UK sales in the first quarter of 2015 Key Indicators The Economy Health Social Inclusion Sustainability Employment Private sector employment Economically active employment rate Unemployment rate GVA per FTE WA population with NVQ L4+ WA population with NVQ L3+ WA population with no qualifications Business start-up rate 3 and 5 year business survival Apprenticeship starts Number of JSA Claimants Number of ESA Claimants % working days lost due to sickness Gap in employment rate between those with a learning disability and the overall employment rate Gap in employment rate for those in contact with secondary mental health services and the overall employment rate Households experiencing fuel poverty Male healthy life expectancy at birth Female healthy life expectancy at birth Vehicle miles by car Days air quality exceeds the moderate or higher thresholds across D2N2 sites CO2 emissions per capita CO2 emissions per 1m of GVA 1 Forecasts for the UK Economy: a comparison of independent forecasts, HM Treasury, October 2015 ekosgen State of the D2N2 Economy Final Report December

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7 3 Employment and Sector Trends Introduction Employment and private sector employment are two of D2N2 s key indicators, with the LEP setting a target of increasing the number of private sector employees by 55,000 ( ) in its Strategic Economic Plan. The employment numbers in this section refer to employees of businesses located within the D2N2 area (wherever the employees are resident), and are taken from the Business Register and Employment Survey (BRES), an annual survey of businesses undertaken by the Office for National Statistics, which provides data on employees and employment by detailed geography and industry. Data from BRES is subject to revisions in the year following publication, and the previous year s revised data is released alongside provisional data for the most recent year (i.e. when the 2014 data was released in September 2015, revised data for 2013 was also produced). For this reason, it is best to consider longer-term trends in employment rather than looking at change year by year. Recent Employment Trends Employee numbers in the D2N2 economy have risen following the recession, with a net increase of 24,000 jobs since The total number of employees in the D2N2 economy rose from 872,100 to 891,800 between 2013 and 2014, equating to an increase of 2.3%. However, growth in the number of employees in D2N2 has not kept pace with growth nationally over the past year (3.1%). Employment trends across the LEP area have varied, with a significant increase in employee numbers in Nottingham (+21,200 jobs), a smaller increases in Derby (+5,200 jobs) and decline in Nottinghamshire (-4,900 jobs) and Derbyshire (-2,400 jobs) between 2009 and Over the past year, according to the provisional data for 2014, employee numbers have increased across all four areas. Change in no. of employees , , , , , , , , , , D2N2 England Trendline Source: BRES Employment Change (employees no.s) 25, , ,100 20,000 15,000 10,000 +5,200 5, ,000-2,400-4,900-10,000 Source: BRES ekosgen State of the D2N2 Economy Final Report December

8 Private / Public Sector Employment Over four fifths of employment in D2N2 is in the private sector (81%) and whilst this has increased over recent years, the LEP area has consistently had a lower share of employment in the private sector than the national average (83% in 2014). D2N2 Public/Private Employment Split D2N2 Private sector job growth by full and part time ( ) 36% 64% % 77% % 75% England 28% 72% % 22% 20% 19% D2N2 has experienced private sector job growth since the recession, with 49,400 private sector jobs created since This equates to an increase of 7%, falling short of the 10% growth experienced across the private sector nationally. One-third of the private sector jobs growth has been in part-time positions (36%, nearly 18,000 jobs). Nationally, only 28% of new private sector jobs are part-time. Part-time employment has grown particularly quickly in D2N2 in the administration and support services and other service activities sectors both of which provide lower-level private sector service jobs. Whilst these sectors have been successful in generating jobs for local people, on average they generate low levels of Gross Value Added (GVA) per full-time equivalent worker, limiting the contribution they can make to raising productivity levels in D2N2. 76% 78% 80% 81% 0% 20% 40% 60% 80% 100% Source: BRES Public Private 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Part time Full time Despite the growth of private sector employment, some parts of D2N2 remain heavily dependent on public sector jobs. The public sector is particularly prominent in Chesterfield (27% of total employees), due to the large number of health and social work employees, resulting from the presence of the large hospital in the area., There are also above average levels of public sector employees in Derbyshire Dales (23%), Ashfield (22%) and Derby (21%). The number of people working in the public sector has fallen significantly in D2N2 in recent years, as a result of national austerity measures. The public administration and defence sector has been particularly hard hit, with a 26% reduction in employment in D2N2, compared to a 17% fall nationally. ekosgen State of the D2N2 Economy Final Report December

9 Public and Private sector employment change % 10% 5% 0% -5% -10% -15% -20% Total Public Private D2N2 England Source: BRES Job Density (employees per 1,000 WA population) D2N2 Gap wth national Source: BRES and Mid Year population Estimates Job Density Job density measures the ratio of employees to working age population within an area and gives an indication of the strength of the local economy. Job density in the D2N2 LEP area is 654 employees per 1,000 working age residents and, despite an increase in job density on the previous year, the LEP area continues to lag the national average (705 employees per 1,000 WA residents), with this gap widening since An additional 69,100 jobs would be required in D2N2 to bring job density levels up to the national average. Job density levels vary within the LEP area, reflecting the location of jobs and commuting flows. Nottingham and Derby have job density levels above the national average, reflecting their roles as key employment centres for the D2N2 economy. Derbyshire and Nottinghamshire fall below the LEP and national average job density. 1,200 1, Job Density 2014 (employees per 1,000 WA population) Source: BRES and Mid Year Population Estimates ekosgen State of the D2N2 Economy Final Report December

10 Sectoral Employment Sectoral employment data gives an indication of industry strengths in the D2N2 area and trends in sectoral employment over recent years. This section starts by presenting data at broad sector and sub-sector level and then goes on to examine employment trends within D2N2 s priority sectors. D2N2 has eight priority sectors, chosen for their relative strengths within D2N2 area and the growth opportunities they present. These are transport and logistics, creative and digital industries, construction, transport equipment manufacturing, food and drink manufacturing, visitor economy, low carbon and life sciences. These sectors are quite tightly defined and sit within and across the broader sector definitions used in the analysis of employment by industry, as shown in the table below: D2N2 Priority Sector Relationship with standard sector definitions D2N2 = 891,800 employees 4% 4% 8% 5% 6% 20% 10% 16% 13% 14% England = 24,299,900 employees 4% 5% 12% 4% 23% 7% 9% 8% 16% 13% Transport and logistics Creative and digital industries Construction Part of Transport and storage Includes small parts of a large number of sectors, including Manufacturing, Wholesale and Retail, Professional, scientific and technical, Arts, entertainment and recreation, and Other services Includes all of the standard Construction definition Finance, Professional & Business Services Wholesale & Retail Health Manufacturing Education Accommodation & Food Construction Public admin Transport & Storage Other Transport equipment manufacturing Part of Manufacturing Food and drink manufacturing Part of Manufacturing Visitor economy Includes part of Accommodation and Food, parts of Arts, Entertainment and Recreation Life sciences Includes small parts of Manufacturing, Retail, Wholesale, and Professional, Scientific and Technical Low carbon BIS definition used. Does not align with Standard Industrial Classifications ekosgen State of the D2N2 Economy Final Report December

11 Manufacturing is a significant employment sector for D2N2, with over 118,000 employees and a LQ 2 of 1.6 in Despite a slight decline in employment since 2009, the sector accounts for 13% of the D2N2 s total employment. The three sectors traditionally thought of as the public sector also constitute a large part of the economy, with 250,400 employees across the health and social, education and public admin sectors in 2014 (28% of D2N2 total). Whilst employment in public administration has declined over recent years, employment within the education sector has grown by nearly 8% since 2009, with a 6% increase in health and social care employment over the same period, although many of the new jobs that have been created in these sectors will be with private sector employers 3. Whilst smaller in employment terms, sectors experiencing employment growth in D2N2 since 2009 include administrative and support services, (the fastest growing sector, +27,900 jobs) and professional, scientific and technical services (+6,800 jobs). The wholesale and retail sector also experienced net growth over the 2009 to 2014 period (+8,900 jobs), despite over 7,700 job losses between 2012 and Sectors which have experienced employment decline in D2N2 since 2009 include construction (-9,500 jobs), arts, entertainment and recreation (-4,900 jobs) and real estate (-2,400 jobs), although these sectors have now begun to recover. At a sub-sector level the largest employment increase between 2009 and 2014 was in employment activities, i.e. people employed through recruitment agencies (+ 21,700 jobs), followed by retail excluding motor (+ 7,600 jobs), education (+ 6,200 jobs in primary, secondary and higher education) and warehousing and support activities for transportation (+ 6,100 jobs). The sub-sectors with the largest employment increases vary quite significantly from these, with the largest increase in the number of employees in specialised construction (+ 6,600 jobs), indicating a relative recovery in fortunes for the construction sector. 2 A location quotient (LQ) indicates the relative concentration of employment in one location compared to the national average a location quotient of more than one indicates a higher concentration of employment. 3 Nationally, only 59% of education employment, and 48% of health and social care sector employment is in the public sector. ekosgen State of the D2N2 Economy Final Report December

12 D2N2 sub-sectors with highest net increase D2N2 sub-sectors with highest net decrease Source: BRES D2N2 sub-sectors with highest net increase ,000 6,000 5,000 4,000 3,000 2,000 1, Source: BRES D2N2 sub-sectors with highest net decrease Source: BRES The largest employment decrease at a sub-sectoral level between 2009 and 2014 was in public administration and defence (-11,700 jobs), followed by specialised construction (despite the job gains over the past year) and the manufacture of fabricated metal products (-5,400 jobs). Again, job losses by sub sector over the most recent year vary from this, with the most significant decreases in human health (-4,800 jobs), computer programming and consultancy (-4,300 jobs) and wholesale trade excluding motor (- 3,900 jobs). Priority Sector Employment Change There has been significant change in employee numbers across D2N2 s priority sectors between 2009 and 2014, as set out below: Source: BRES Food and Drink Manufacturing experienced the largest proportionate employment increase between 2009 and 2014, with an 11% increase in employment (+1,700 jobs). However, employee numbers declined between 2013 and 2014 (-900 jobs). ekosgen State of the D2N2 Economy Final Report December

13 Transport equipment manufacturing has experienced an increase of 1,000 jobs between 2009 and 2014 (+5%), with an increase of 600 jobs over the past year. Life sciences experienced a small increase in employee numbers during 2009 to 2014, creating 200 additional jobs (+4%). Construction experienced the most significant decline in employee numbers between 2009 and 2014, with over 9,500 job losses (-19%). Over the past year the sector has begun to recover, with an increase of 5,500 jobs. Visitor economy also experienced employment decline between 2009 and 2014, with a decrease of 7% (-5,600 jobs) Priority sector employment change (net change) Transport and logistics experienced a 2% growth in employee numbers between 2009 and 2014 (+600 jobs) Creative and digital industries employment has declined significantly since 2009, with a loss of 7,800 jobs (-20%). Source: BRES Low Carbon is difficult to define using SIC codes given the nature of the activities, processes and technologies that comprise the low carbon sector. However, recent research estimated that there were 35,000 jobs in the low carbon sector across the East Midlands in 2013 and the sector has experienced growth nationally since Previous research has found that whilst power generation is a significant activity in the D2N2 area, generation from renewable sources is more limited. It also points to the area s existing strengths in the low carbon vehicles and fuels sector, including Toyota and Rolls Royce and significant research expertise in this area Priority sector employment change (net change) Source: BRES Knowledge Intensive Employment 4 The Size and Performance of the UK Low Carbon Economy, Department for Business, Innovation and Skills, Report 3: The D2N2 Economy, prepared by the Economic Strategy Research Bureau, Nottingham Business School, Nottingham Trent University, December ekosgen State of the D2N2 Economy Final Report December

14 Increasingly, value within the economy is created through the application of knowledge to both service and production processes, and those areas which have a higher share of knowledge intensive employment have stronger economic performance. The proportion of knowledge intensive employment in D2N2 is slightly lower than the England average. This is due to a lower proportion of employment in knowledge intensive service sectors, with the share of employment in high tech and medium-high tech manufacturing 50% higher than the share nationally (4.5% of total employment compared to 3%). Knowledge Intensive Employment (% of total employment) Total Knowledge intensive services Med. - High tech manuf. High tech manuf. 0% 10% 20% 30% 40% 50% 60% Source: BRES D2N2 England D2N2 has an opportunity to increase the size of its knowledge intensive service sectors, although only a small proportion of knowledge intensive service employment is covered by the priority sectors (parts of the life sciences and creative and digital sectors). The Professional, Scientific and Technical sector has been the second fastest growing sector in D2N2 over the past five years, but is still under-represented compared to the national average. Additional support to increase employment in this sector could contribute to raising productivity and increasing the GVA generated by the D2N2 economy. ekosgen State of the D2N2 Economy Final Report December

15 4 Business Base and Enterprise A thriving business base and, in particular, a strong and competitive base of small and medium sized enterprises (SMEs), is vital to economic growth due to the innovation, competition and job creation which it creates. BIS describes SMEs as the key enablers of business success 6 and highlights their three contributions to economic growth: Innovation: There is a clear link between innovation and firm growth, with innovation driving sales growth and employment. Research indicates that innovative firms have higher growth rates and SMEs play an important role in acting as a seedbed for innovation within the economy. Competition: Smaller firms entering the market stimulate greater levels of competition, driving productivity growth by causing less competitive firms to exit and therefore raising aggregate productivity levels. Competition also acts as an indirect spur to innovation, creating positive reinforcement cycles. Job creation: SMEs create a disproportionately large amount of jobs, given the percentage of the workforce they employ. Small businesses have increased their share of employment year on year and by 2010 their share of total private sector employment in the UK was three times what it had been in Whilst SMEs have a crucial role to play in the economy, only a relatively small proportion of each cohort of new firms survives beyond the first few years, and only 20-30% last for five years, by which time many will not have experienced any employment growth. Of particular importance to economies therefore are high growth SMEs 7, most of which tend to be new businesses. Despite accounting for a relatively small proportion of all new firms, high growth businesses create significant employment. Research indicates that regions with a higher proportion of employment in high growth firms (even if they also have a higher proportion in lower growth or declining companies) have higher employment rates, with positive benefits in relation to economic inactivity rates 8. The D2N2 Business Base In 2013 there were 67,700 active businesses within the D2N2 LEP area. This number has increased sharply since 2012, with an increase of 1,450 businesses (+2%), although at a slower pace than the national average of 3% growth in the business base. Whilst nationally the number of businesses continued to rise throughout the recession, with a slight drop in 2011, in D2N2 the number peaked in 2008, fell by 3% by 2012 and had not yet recovered to its pre-recession peak by ,000 70,000 68,000 66,000 64,000 62,000 60,000 58,000 56,000 No. of active businesses D2N2 England Trendline Derbyshire and Nottinghamshire account for the majority of the business base, jointly contributing almost 80% of the LEP total. Nottingham has a slightly larger business base than Derby. 6 Department for Business Innovation & Skills BIS analysis paper number 2: SMEs: The Key Enablers of Business Success and the Economic Rational for Government Intervention December Defined by the OECD as an enterprise employing more than 10 people which grows at a rate of 20% or higher per annum. 8 NESTA Geoff Mason, Kate Bishop and Catherine Robinson Business Growth and Innovation: The wider impact of rapidly-growing firms in UK city-regions October 2009 ekosgen State of the D2N2 Economy Final Report December

16 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 67,720 No. active businesses ,265 24,635 8,635 7,185 18% 16% 14% 12% 10% 8% 6% 4% 16% Business start-up rates % 14% 13% 13% 12% 0 2% 0% Nottingham England Derby D2N2 Nott'shire Derbyshire Source: Business Demography Business Starts and Deaths D2N2 has a business start-up rate which lags the national average, equivalent to 13% of the business base, compared to 14% nationally in Start-up rates vary across D2N2, with Nottingham and Derby exceeding the LEP average, whilst Nottinghamshire and Derbyshire have below average rate, reflecting the larger size of their existing business base. Derbyshire in particular has a low start up rate, accounting for 37% of business starts compared to 40% of the existing D2N2 business base. Business deaths in the LEP stood at 9% of active business in 2013; below the national average of 10% and contributing to high levels of business survival in the D2N2 economy. Source: Business Demography Business death rates % 11% 10% 10% 10% 9% 9% 9% 8% 6% 4% 2% 0% Nottingham Derby England D2N2 Nott'shire Derbyshire Source: Business Demography Business survival in D2N2 is strong, with a LEP average survival rate that is above the national average three and five years after start-up. Thirteen of the D2N2 districts have three year survival rates above the England average, and twelve districts have five year survival rates above the national average. ekosgen State of the D2N2 Economy Final Report December

17 Even so, fewer than 60% of business established in any one year will still be trading three years later, and fewer than half survive for five years or more. Creating the number of new businesses that D2N2 wishes to see will require a significantly higher level of enterprise creation, or improved business survival rates (which can be affected by a wide range of factors outside the control of either the business or support organisations). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Survival of businesses born in Year 2 Years 3 Years 4 Years 5 Years Source: Business Demography D2N2 England Business Density Business density is the ratio of active businesses to working age population in an area, and provides a measure of the vitality of the economy. Across the D2N2 LEP area business density is below the national average with a LEP average of 50 businesses per 1,000 working age residents in 2013, compared to 62 nationally. An additional 17,100 businesses would be required within the LEP area in order to meet national business density levels Business Density (per 1,000 WA population) 2013 Derbyshire D2N2 Nott'shire Derby Nottingham Source: Business Demography and Mid Year Population Estimates England average = % 60% 3 year business survival (businesses born in 2010) 90,000 80,000 70,000 Gap with the National Average Business Density +17,100 Gap with national Current base 50% 60,000 40% 50,000 30% 20% 10% 40,000 30,000 20,000 10,000 +3,000 +6,400 +4,900 +2,800 0% Nott'shire Derbyshire D2N2 Derby England Nottingham 0 D2N2 Derbyshire Nott'shire Nottingham Derby Source: Business Demography Source: Business Demography and Mid Year Population Estimates ekosgen State of the D2N2 Economy Final Report December

18 Business Support in D2N2 The D2N2 Growth Hub has been established to link businesses in D2N2 who have an ambition to grow, to the support and information they need. The Growth Hub facilitates the market for business support services, based on research evidence that demonstrates that businesses that use support services well are more likely to survive, compete and grow. The Growth Hub is delivered through a partnership with national and local business support providers from the public, private and third sector, and reduces complexity and uncertainty for businesses in D2N2 by helping them to navigate the complex business support landscape. Businesses can make enquiries via phone, or online, and may be provided with information, invited to attend a training event or referred to a Business Advisor or partner for further support. Since its establishment in December 2014, over 1,500 businesses have been provided with assistance, and there have been over 47,000 visitors to the D2N2 Growth Hub website. Referrals are being received from a wide range of sources, including banks, local councils, other business support providers, and via the website or an internet search. The number of businesses assisted has risen month on month, and has been above 150 per month since June The Growth Hub is building a profile on social media, with nearly 1,800 followers on twitter. Businesses from across the D2N2 area have been provided with advice and support, with Derbyshire (county) and Nottingham accounting for two-thirds of businesses assisted. Enquiries have been received on a wide range of topics, and the business needs identified have been diverse. Examples include enquiries about training, re-location and rural diversification. The most common enquiries have related to business finance and growth capital. Businesses have been referred on to relevant providers for specialist support. The chart below shows the most common destinations for onward referrals: ekosgen State of the D2N2 Economy Final Report December

19 Source: D2N2 Growth Hub Operations Report, November 2015 ekosgen State of the D2N2 Economy Final Report December

20 5 Innovation Innovation is important to the growth and competitiveness of businesses and higher levels of innovation are associated with stronger local economies. D2N2 has a strong support system for innovation within the LEP area, with the presence of world class universities and innovative companies, such as Toyota UK, Alliance Boots and Rolls Royce. Developments such as BioCity and Infinity Park also help to form a strong innovation environment. Data on innovation activity below regional level is not available from standard sources. The most recently available data comes from the Enterprise Research Centre s analysis of the UK Innovation Survey 2013, Benchmarking Local Innovation The innovation geography of the UK. This covers the period between 2010 and During , 19% of firms in D2N2 reported that they were engaged in product and service innovation. This is equivalent to approximately 13,000 businesses in D2N2 and the LEP ranks 19 th of 39 LEPs in terms of the proportion of its businesses involved in innovation. A similar proportion of businesses reported collaboration as part of innovation activity (19% of all D2N2 firms) and engagement with R&D (17% of all D2N2 firms). Amongst innovating firms, the most common type of innovation activity was new to market innovation, with 40% of firms reporting that their new products/services were new to the market. Almost a third of innovating firms reported they had engaged in new strategic initiatives or changes to marketing concepts / strategies during this period and 8% reported process innovation. Innovation Benchmarks Ranking Highest D2N2 (out of 39 Ranking % LEPs) LEP (%) Product and service innovation 19% 19th 27% Engaged in R&D 17% 19th 28% Collaboration as part of innovation activity 19% 21st 31% Process innovation* 8% 33rd 19% Strategic/ marketing innovation* 30% 6th 32% New to market innovation* 40% 30th 67% Source: UK Innovation Survey *of innovating firms Within the East Midlands region 9 1,639m was spent on R&D during 2012, 1.8% of regional GVA. This matched the national level of expenditure as a percentage of GVA, and was higher than in all English regions other than the South East and East of England. Of total regional R&D expenditure, 73% was by businesses, in comparison to 66% nationally. A lower proportion of R&D in the East Midlands was undertaken by Higher Education Institutions than nationally (21% compared to 24%). A small proportion of R&D expenditure was by Government organisations (5%). 80% 70% 60% 50% 40% 30% 20% 10% 0% Expenditure on R&D by sector of performance 2012 Business Higher Education Government Private Non-Profit Source: Gross Domestic Expenditure on R&D East Midlands England Another indicator of levels of innovation in an area is the proportion of employment which is in knowledge intensive sectors 10. As noted in section 3 of this report, in 2014, there were approximately 467,000 people in employment in knowledge intensive sectors in D2N2 (including high and medium tech manufacturing), accounting for 52% of total employment in the LEP, slightly below the national average (53%). The proportion of people employed in highly skilled occupations can 9 Data not available below regional level. 10 Eurostat definition of knowledge intensive services based on Standard Industrial Classification (SIC) 2007 codes. High and medium-high technology manufacturing jobs have been defined by Eurostat, which includes jobs such as manufacturing of pharmaceuticals, chemicals, technical machinery e.g. clocks, aircraft, agricultural and motor vehicles. ekosgen State of the D2N2 Economy Final Report December

21 also be used as an indicator of innovation in an area as it is assumed that more highly skilled occupations are likely to lead to higher levels of innovation. In D2N2, 52% of employment is in highly skilled occupations, falling short of the national average of 55%. ekosgen State of the D2N2 Economy Final Report December

22 6 Employment and Skills Economic Activity and Inactivity Economic Activity (% of WA population) 2015 England average = 77.6 The D2N2 labour market underperforms against the national average on all four of the key labour market indicators, although this varies by sub area, with weaker labour market performance in Nottingham, whilst Derbyshire outperforms the national average. Labour Market Indicators 2015 D2N2 England Economic activity rate (%) Employment rate (%) Unemployment rate (% of econ. active) Economic inactivity rate (%) Source: Annual Population Survey Economic activity is a measure of those who are active within the labour market, i.e. employed, self-employed or unemployed but actively seeking work. In 2015, the economic activity rate in D2N2 was 76.5%, the same as the previous year, and slightly lower than the national rate (77.6%). If economic activity rates in D2N2 matched the national average, an additional 14,400 people of working age would be active within the labour market. Economic activity is particularly low in Nottingham (70.6%), whilst rates in Nottinghamshire, Derbyshire and Derby exceed the LEP average, with the latter two also slightly exceeding the national rate Derby Derbyshire Nott'shire D2N2 Nottingham Source: Annual Population survey In 2015, 23.5% of the population in D2N2 were economically inactive (not in employment or unemployed), exceeding the national average of 22.4%. The most common reason for economic inactivity in D2N2 is that people were longterm sick (25.3% of economically inactive population), followed by students (24.1%) and looking after the family/home (22.5%). These were also the most common reasons for economic inactivity across England, although the latter two were more prominent nationally, with a lower proportion who were long-term sick. Inactivity by reason 2015 D2N2 (%) England (%) Long-term sick Student Looking after family/home Retired Other Temporary sick Discouraged Source: Annual Population Survey Nottingham has a particularly high representation of students within its inactive population, with students accounting for 44% of inactive residents. ekosgen State of the D2N2 Economy Final Report December

23 Employment and Unemployment Employment rates have been on an upward trend in D2N2 since 2011 and 19,500 more residents are in work now than four years ago. In 2015 the employment rate stood at 71.8%, although reflecting the lower than average economic activity, this continues to lag the national average (72.9%). Across D2N2 employment rates are above the England average amongst younger age groups (16-24 years), but below average for those aged 50+. Nottingham has the lowest employment rate (63.4%), whilst Derby, Derbyshire and Nottinghamshire outperform the LEP average. The rate of unemployment in D2N2 is above the England average in every age group, except those aged Young people aged experience the highest rates of unemployment 28.8% compared to 25.7% in this age group nationally (and 6.7% of all working age people in D2N2) Unemployment rate (% of economically active) Employment rate (% of WA population) 2015 England average = England average = Nottingham Derby D2N2 Nott'shire Derbyshire Source: Annual Population survey 10 0 Derbyshire Derby Nott'shire D2N2 Nottingham Source: Annual Population survey The number of working age people who are unemployed has fallen by 1,200 in D2N2 over the past year, a fall of 1.7%. The unemployment rate in D2N2 (as a percentage of the economically active population) stands at 6.7%, compared to 6.4% nationally. The unemployment rate nationally has fallen faster, with a decline of 1.3% points compared to 0.2% points in D2N2. Unemployment continues to affect Nottingham more severely than other parts of D2N2. Although the number of unemployed people in the city has fallen, the decline has been quite small in relation to the scale of the problem. ekosgen State of the D2N2 Economy Final Report December

24 Occupational Profile The occupational profile of the D2N2 workforce broadly mirrors the national profile, although there are some slight differences, reflecting the area s strengths in sectors such as manufacturing, including: A higher proportion of employment in Process, plant and machine operative (+1.7% points), skilled trades (+1.1% points) and elementary (+1.2% points) occupations. A lower proportion of employment in professional occupations (-1.9% points), managers, directors and senior occupations (-1.1% points) and associate professional and technical occupations (-1.1% points). Elementary Process, plant and machine op. Sales and customer services Caring, leisure and services Skilled trades Admin and secretarial Assoc. Professional Professional Mng., Direc. And Senior Source: Annual Population Survey Occupational Profile % of population D2N2 England Hours and Earnings Data on hours worked and earnings is available through the Annual Survey of Hours and Earnings. Two measures of earnings are available: Workplace Earnings estimates of average earnings based on place of work. Resident Earnings estimates of average earnings based on place of residence. Workplace earnings tend to be higher than resident earnings in urban areas, where people travel in to access higher paid jobs. Resident and workplace earnings vary across D2N2, although, with the exception of workplace earnings in Derby, all tend to be below the national average. Workplace earnings in Derby and Nottingham exceed resident earnings, whilst resident earnings in Derbyshire and Nottinghamshire exceed workplace earnings. This suggests that the highest paid jobs in D2N2 are available in the two cities and that residents from the surrounding areas commute into the cities to access this well-paid employment. High productivity levels in Derby are reflected in higher pay. 35,000 30,000 25,000 20,000 15,000 10,000 Average Annual Earnings 2014 National average = 27,891 5,000 0 Derby Nottingham Derbyshire Nott'shire Workplace Source: Annual Survey of Hours and Earnings Resident Despite average earnings falling below the national average, all four areas in D2N2 have average hourly earnings which exceed the national living wage set out by the Chancellor in the summer 2015 Budget of 7.20 per hour. ekosgen State of the D2N2 Economy Final Report December

25 % of WA population Skills Profile Over 30% of D2N2 s working age residents now hold higher level qualifications (Level 4 and above). The increase over the past year (+1.6% points) was greater than the national increase (+0.8% points), narrowing the gap between England and D2N2, which had been widening since D2N2 has also seen a bigger increase in the proportion holding qualifications at Level 3 and above than the national average. The proportion has reached 53.5%, still slightly below the England average of 56.5%. The percentage of D2N2 s working age population with no qualifications has fallen to under 10% of the total. At 9.7%, the percentage is still higher than the national average (8.6%), but has fallen at a faster rate over the past year Source: Annual Population Survey Qualifications of WA population 2014 D2N2 England % WA Population with L4+ Qualifications D2N2 England Source:Annual Population Survey % WA Population with No Qualifications D2N2 England Source: Annual Population Survey ekosgen State of the D2N2 Economy Final Report December

26 Skills Gaps and Shortages Skills gaps and shortages can have damaging impacts on businesses and can prevent companies from operating at their maximum potential. This can result in lower productivity than if fully skilled workers were employed and can therefore result in lower levels of GVA generated. Data on skills gaps and shortages is collected from over 75,000 employers (approximately 3,000 in D2N2) by UK Commissions for Employment and Skills, with the most recent data collected in Employers in D2N2 are generally satisfied with the skills of those they employ, with a slightly lower proportion of employers reporting a skills gap within their current workforce than the national average (14% compared to 15% nationally). Thirteen percent of employers in D2N2 reported having at least one vacancy (compared to 15% nationally). D2N2 employers were less likely to report that their vacancies were hard to fill or due to a skills shortage amongst potential recruits than was the case nationally. Employers with skills gaps and shortages D2N2 England Employers with at least one vacancy 13% 15% Of those with vacancies: Have at least one vacancy that is hard to fill 34% 35% Have a skills shortage vacancy 25% 27% Source: UKCES, yr olds (school) yr olds (FE College) University/HE leavers Source: UKCES % of young people who are very well/well prepared for work 16 yr olds (school) 0% 20% 40% 60% 80% 100% D2N2 England Employers in D2N2 rated the work readiness of young people positively, with higher proportions of employers rating young people as very well or well prepared for work across all age groups than was the case nationally. In line with the national average, 66% of employers in D2N2 provided some form of training to their staff over the past 12 months. The type of training provided was broadly in line with the national profile (as shown below), with 35% providing on and off the job training, 12% providing off the job training only and 19% providing on the job training only. D2N2 England Establishments providing training for staff over past 12 months 35% 35% 12% 14% Despite the evidence from large-scale surveys suggesting that employers in D2N2 are broadly satisfied with the skills of those they employ, skills shortages and gaps remain a serious issue for some employers in the LEP area, and have the potential to constrain future economic growth, particularly the capacity of the D2N2 economy to generate higher levels of output per worker. Feedback from the latest Chamber Quarterly Economic Survey (Q3 2015), indicates that nearly 60% of the respondents who had tried to recruit over the previous quarter had struggled to find suitable staff, with particular difficulties in recruiting to professional and managerial, and skilled manual / technical occupations. Addressing long-term skills needs and driving up the skills of the workforce remains an important priority for D2N2. 19% 17% 34% 34% 0% 20% 40% 60% 80% 100% Off-job and on-job training Off-job training only On-job training only Do not train Source: UKCES ekosgen State of the D2N2 Economy Final Report December

27 Apprenticeships Apprenticeships are a key mechanism for addressing vocational skills needs and have been a priority for government policy and funding in recent years. There was a 13% reduction in the number of apprenticeship starts in D2N2 over the past year. This mirrors the trend nationally, where a 14% decline has been recorded. The fall in starts is thought largely to be due to changes in funding availability for those aged 24+ entering apprenticeship provision, which have subsequently been reversed. Despite this, the number of people starting apprenticeships in D2N2 in 2013/14 was nearly 150% higher than ten years previously, with over 20,000 starts. Derby saw the greatest increase, with apprenticeships starts rising by nearly 200%. 30,000 25,000 20,000 15,000 10,000 Apprenticeships starts 2005/6-2013/14 Business, Admin. & Law Health, Pub.Services & Care Engin. & Manuf.Tech. Const., Plan. & Built Env. Leisure, Travel & Tourism Agric., Hortic. & Animal Care Info. & Comms. Tech. Source: SFA D2N2 apprenticeship starts by sector subject area 2013/14 Retail & Commerce Education & Training Arts, Media & Pub. Science & maths 0 2,000 4,000 6,000 8,000 Intermediate level apprenticeships account for two thirds of all starts in the D2N2 area (slightly above the national average), whilst advanced level apprenticeships account for a further 33% of starts. Nottingham has a particularly high proportion of starts at intermediate level (71% of starts), whilst Derbyshire has an above average proportion of advanced apprenticeship starts (34% compared to 32% across the LEP area). 5, / / / / / / / / /14 70% 60% Apprenticeship Starts by Level 2013/14 Source: SFA D2N2 England trend line 50% Within D2N2, three quarters of apprenticeship starts were in Derbyshire and Nottinghamshire, collectively accounting for 15,500 starts. A further 14% of starts were in Nottingham and 12% in Derby. Business, administration and law was the most popular apprenticeship sector subject area, with over 6,400 starts in 2013/14 (31% of total starts). This was followed by health, public services and care, with 4,800 starts and retail and commerce, with 4,350 starts. There was also a substantial number of starts in engineering and manufacturing technologies (2,870 starts; accounting for 14% of all starts in D2N2, compared to 15% nationally). 40% 30% 20% 10% 0% Intermediate Advanced Higher D2N2 England Source: SFA ekosgen State of the D2N2 Economy Final Report December

28 7 Productivity and Prosperity The National Dimension Whilst employment has recovered strongly since the recession in most parts of the UK, productivity growth has been very weak. This has contributed to downward pressure on wages, leading to low rates of increase in household incomes, and continuing weakness in household finances. The UK s GDP per hour worked is estimated to be considerably lower than it would have been if growth had continued in line with pre-recession trends, and the downward pressure on productivity appears to have been greater in the UK than in other G7 nations. GDP per hour worked, actual and projected UK UK projection G7 exc. UK G7 exc. UK projection Source: International Comparisons of Productivity, ONS ONS s International Comparisons of Productivity dataset indicates that output per hour is nearly one third higher in France, the US and Germany than it is in the UK. The productivity gap between the UK and the rest of the G7 nations is the widest recorded since records began in Output per hour worked, UK= Source: International Comparisons of Productivity, ONS Low levels of productivity have serious implications for economic growth and prosperity levels, leading to limited opportunities for earnings growth and raising the risk of inflationary pressures within the economy. More highly productive economies have higher average living standards, and BIS describes productivity growth as the route to raising living standards for everyone in the UK. Raising productivity has therefore become the key economic priority for Government. Fixing the Foundations, the Government s productivity plan, sets out a fifteen point plan to boost the UK s productivity growth, with two key pillars: encouraging longterm investment, and promoting a dynamic economy. It sets out the government s long-term strategy for tackling the issues that matter most for productivity growth, in areas including skills, transport, energy, planning and housing, international trade and a re-balanced economy, including the promotion of the Midlands Engine for Growth proposals Fixing the Foundations: Creating a more prosperous nation. HM Treasury, ekosgen State of the D2N2 Economy Final Report December

29 The D2N2 Position Productivity levels in D2N2 (measured in terms of gross value added per full-time equivalent worker) are below the England national average, and therefore well below levels achieved in other advanced industrial nations. The value of the output produced by each full-time equivalent worker in D2N2 in 2013 was 55,437, an increase of 0.6% over the previous year. However, this increase was smaller than the national increase (1.4%), so the gap between the productivity of the D2N2 economy and the national economy has widened. To close the current gap, each FTE worker in D2N2 would need to produce an additional 9,968 of GVA, equivalent to an 18% increase in output. 70,000 60,000 50,000 40,000 30,000 20,000 10,000 9,796 GVA per FTE ,448 8,020 9,372 9,968 noted that comparing output levels within England does not take account of differences in prices in different parts of the country. Regional Prosperity The gap between potential and actual levels of output in D2N2 (the prosperity gap) is a result not only of lower levels of productivity amongst D2N2 s workers, but also the employment rate in the LEP area and the number of hours worked by those in employment. The chart below illustrates that the main factor underlying the prosperity gap is significantly lower levels of productivity in D2N2, with lower employment levels only accounting for a very small proportion of the total difference in output levels. Lower levels of productivity arise from two sources first of all the sector mix, i.e. how employment in D2N2 is spread across sectors with varying levels of productivity compared to the distribution of employment in England as a whole. This accounts for around one-third of the total productivity gap, and indicates that D2N2 has a higher proportion of its employment in lower productivity sectors than is the case nationally (and conversely a lower proportion in sectors with higher levels of output per worker). The remaining two-thirds of the gap is due to lower levels of productivity in D2N2 across all sectors, compared to national levels. This is likely to reflect the nature of work undertaken in D2N2, e.g. more back office functions and lower value activity within sectors than in some other parts of the country. 0 Source: Regional Accounts and BRES Gap to England D2N2 Based on the current level of employment in D2N2, the output gap with England as a whole is 9,658m, i.e. if those currently employed in D2N2 were as productive as the average worker in England as a whole, the output created in the D2N2 economy would be 9,658m higher. Productivity is affected by a range of factors, including the value of the output being created within each sector, the level of technology/capital intensiveness of the sector and the skills of the labour involved in production. D2N2 s lower than average levels of productivity reflects its performance on all these factors, but it should be ekosgen State of the D2N2 Economy Final Report December