Living standards in Greater Manchester
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Stephen Clarke's presentation from our event at Manchester City Hall.
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Living standards in Greater Manchester
- 1. We do things differently here Living standards in Greater Manchester Stephen Clarke November 2016 @stephenlclarke/@resfoundation
- 2. Britain’s major cities underperform 2 Notes: All cities shown have populations between 1 and 2 million Source: OECD, Metropolitan database
- 3. 3 DON’T LOOK BACK IN ANGER Strong economic performance has been followed by disappointment
- 4. Strong pre-crisis economic growth has unfortunately been followed by poor performance since 4 Source: RF analysis of ONS, Regional Gross Value Added Greater Manchester’s economy performed strongly before the crisis, but remains around 3.5 percentage points below its pre-crisis peak
- 5. Similarly good employment performance pre- crisis, but the region has fallen behind 5 Source: RF analysis of ONS, Labour Market Survey
- 6. And earnings were keeping pace with UK before crisis, growing divergence afterwards 6 Source: RF analysis of ONS, Annual Survey of Hours and Earnings
- 7. As a result living standards are broadly in line with other cities, but below average overall 7 Source: RF analysis of ONS, Small area income estimates 2011/12 Weekly household incomes are £76 or 15% lower in Greater Manchester than in the rest of Great Britain
- 8. 8 ISOLATION Falling inequality between people Rising inequality between places
- 9. Between 1997 and 2016 pay growth was broadly progressive 9 Source: RF analysis of ONS, ASHE … but mainly because it fell faster for those at the top since the crisis 1997 - 2016 1997 - 2009 2009 - 2016 -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 10pct 20pct 30pct 40pct 50pct 60pct 70pct 80pct 90pct Average annual change in gross hourly pay (RPIJ-adjusted) (Poorest) (Richest) Pay rose by 21% for the lowest- paid between 1997 and 2007
- 10. Employment rose most for those most likely to be out of work… 10 Sources: RF analysis of ONS, Labour Force Survey The employment rate for ethnic minorities rose from 44% to 54% And from 53% to 61% for people with low level qualifications
- 11. … most of the improvement came before the crisis 11 Sources: RF analysis of ONS, Labour Force Survey
- 12. Geography matters a lot for understanding how much different groups have benefitted 12 Sources: RF analysis of ONS, Labour Force Survey Notes: Each diamond represents a local authority in Greater Manchester Employment rate:
- 13. Geography matters a lot for understanding how much different groups have benefitted 13 Sources: RF analysis of ONS, Labour Force Survey Notes: Each diamond represents a local authority in Greater Manchester Employment rate: Low qualified 43% in Manchester 69% in Stockport
- 14. Geography matters a lot for understanding how much different groups have benefitted 14 Sources: RF analysis of ONS, Labour Force Survey Notes: Each diamond represents a local authority in Greater Manchester Employment rate: Low qualified 43% in Manchester 69% in Stockport Younger people 53% in Rochdale 72% in Stockport
- 15. Despite inequalities between people falling, they were rising in one respect - housing 15 Source: RF analysis of ONS, Labour Force Survey Greater Manchester has seen the biggest fall in homeownership of any city region - down 15 percentage points since 2003 This has most affected younger people
- 16. Some areas saw strong enough growth in the 200os to outweigh hit from crisis 16 Source: RF analysis of ONS, Small area income estimates 2004/05 & 2011/12 Between 2004/05 and 2011/12 Overall incomes fell by 3% across Greater Manchester though income growth ranged from 5% to 35% in parts of the regional centre.
- 17. Strong population growth has taken place in fast growing areas 17 Source: Transport for Greater Manchester There was significant population growth in the regional centre between 2001 – 2011…
- 18. Strong population growth has taken place in fast growing areas 18 Source: Transport for Greater Manchester There was significant population growth in the regional centre between 2001 – 2011… And in the regional centre this corresponded broadly with income growth
- 19. 19 PLEASE PLEASE PLEASE LET ME GET WHAT I WANT Productivity, geographic inequality and housing
- 20. Three key challenges Productivity: • Output per hour worked in GM is £26.60 compared to £30 in the rest of the country. • 1 in 5 workers will be paid the minimum wage in 2020. • Raising productivity in high-employment low paying sectors is vital, as is providing opportunities for high-skilled workers. 20
- 21. Three key challenges Geographic inequality: • Household incomes in the richest neighbourhoods in GM are 1.8 times those in the poorest, and this is up from 1.6 in 2007. • GM is the most unequal region in terms of employment rates. • Devolution of transport, employment and skills powers provide opportunities to help people as well as places. 21
- 22. Three key challenges Housing: • Housing costs rose 26% in GM between 2004 and 2012 while incomes fell by 5%. • Homeownership has fallen by 15 percentage points since 2003. • The Greater Manchester Spatial Framework provides an opportunity to set clear goals around housebuilding. 22
Notes de l'éditeur
- The focus of the report and this presentation is living standards in GM, but first of all a little disclaimer. Our chief economist, Matt Whittaker, is from Manchester and I think he would have liked to have done this presentation himself, only because he would have managed to fill it full with pop references as the report is. As it is I’ve done my best to litter this with suitable nods to Manchester’s cultural heritage, but if you want more, and lots more graphs and charts, then you should definitely read the report.
- Firstly to provide a bit of context: Britain’s major cities underperform compared to similarly sized cities in other countries and the UK is an outlier in this regard. This chart looks at similar sized cities in Western Europe. The key takeaway is that GDP per capita is lower in Britain’s two major second cities than in most equivalently sized cities in Europe. This underperformance has been widely discussed and was even raised by the Chancellor in last week’s Autumn Statement. Why do cities underperform?
- First I am going to provide an overview of the whole of GM economy, then I’m going to take a closer look at how different people, and different places, in the region have fared over the past two decades. I will finish by looking at three key challenges for the region.
- The main message is that the GM economy performed above average before the crisis and has performed below average since. The GM economy is still around 3.5 ppts smaller than it was before the crisis, whereas the UK economy returned to its peak in 2015 and the other cities are also back at peak. So what does this all mean for living standards?
- The varying economic performance is reflected in employment and earnings. First let’s take a look at employment. The employment rate significantly lower in GM than the UK average. Furthermore GM’s performance relative to the UK has been falling over time. Whereas in 2007 GM’s employment rate was 2.5 ppts lower than the UK average, today it is around 4 ppts lower.
- Similarly pay in GM is lower in than the UK average. Before the crisis the average worker in GM made just 25p less an hour than the average UK employee. Now it is 83 pence. GM has also fallen further behind the other cities during this period.
- All this contributes to lower living standards This chart looks at net weekly household income, before housing costs. This is a pretty encompassing measure of living standards (although we will touch upon housing costs later) and on this measure living standards are lower in GM than in the rest of GB. It is important to note that GM is not an outlier compared to other cities and has higher household incomes than many other large cities, although incomes are significantly lower than in the West of England and London.
- I have provided a very broad brush overview of living standards in GM. I will now look at how specific people and places have fared.
- Firstly lets look at earnings. With pay growth across the earnings distribution – the poorest on the left and the richest on the right. Looking at the whole period pay growth has been very progressive, with pay rising more at the bottom and middle of the distribution. However… we can see two distinct periods, pre and post crisis. Pre-crisis hourly pay increased the most for those earning the least, and lowest for those in the middle. However, pay growth was between 15-25% across the distribution. Post-crisis pay fell more at the top of the pay distribution and across the distribution pay fell (all of blue line is below 0) Therefore while difference in pay between workers did narrow over the period, this was a lot to do with big falls in pay at the top of the distribution.
- Turning to employment we can look at the employment rates for different groups in the pre-crisis period. At the top are a group we describe as ‘high-performing’. These are middle-aged, white, relatively highly educated men. As you can see their employment rate is steady at around 95%. By contrast the employment rates are much lower for various groups of people that traditionally are more disadvantaged in the labour market. Positively we see that, in general, employment rates for these groups rose strongly before the crisis. Nearly all groups experienced an increase and for some such as ethnic minorities, single parents and disabled people the gain was 10 ppts. It is also worth mentioning that GM performed well against other cities in terms of the employment rate of these groups over the period.
- However, again we see a far less positive story since the financial crisis. Employment rates have remained broadly flat for most of these groups. Encouragingly they did not significantly fall during the crisis. Furthermore, as we shall see, whether or not a group experienced an increase in its employment rate depending heavily on where in the region they were.
- Of all the city regions, disparities in terms of employment rates of different local authorities, is greatest in Greater Manchester. Unfortunately, despite some strong employment growth for traditionally disadvantaged groups before the crisis differences in employment across the region remain large.
- People with low qualifications have an average employment rate of 45 per cent in Manchester but 57 per cent in Trafford
- Younger people (aged 16-29) have a 53% employment rate in Rochdale and a 72% employment rate in Stockport.
- Although in general disparities between people fell over this period, in one respect they didn’t – Housing. Greater Manchester experienced the largest fall in homeownership of any city region over the course of the past decade or so. The evidence is that this affected younger people the most. This chart shows home ownership and share of people renting privately in GM for two age groups 25-39 and 40 – 54. Most interestingly people aged 25-39 are now more likely to rent in GM than own, a complete reversal of the situation 15 year ago.
- Looking specifically at geographic inequality we can look at household income. This map shows 345 small local areas in Greater Manchester coloured from red to green depending on the change in household income for each area between 2004 and 2012. This was a period when income growth was slowing before the crisis, and then falling during it. As a result most areas experienced a fall in household income over the whole period. The key takeaway though is that household income rose in some areas – particularly parts of the regional centre and down a central southerly corridor down through Trafford. However, although household incomes rose in these areas, this is not to say that residents living there in the beginning of the period necessarily experienced these gains.
- This map shows the change in population density in Greater Manchester between 2001 and 2011. Red areas are those in which the population has grown significantly. As you can see parts of the regional centre have experienced strong population growth.
- Those same areas also tended to see strong income growth, suggesting that a significant degree of the income growth was being caused by new, higher earning, individuals moving into the area.
- So what are the three key challenges that the city’s leadership faces?
- The first challenge is productivity There are challenges here at the top and lower down the labour market. At the top there is evidence that Greater Manchester has fewer professionals and managers than the rest of the country, this is despite the fact that the region is good at retaining graduates that attend its universities. Yet, there is perhaps an even bigger challenge at the bottom of the labour market. Increasing numbers of workers in Greater Manchester will find themselves on the minimum wage as it increases in value over the next four years. This means that in sectors such as retail, health and social care, accommodation and logistics, more needs to be done to improve progression.
- The second challenge is geographic inequality We have seen the income and employment disparities in Greater Manchester. Addressing these should be a priority. Fortunately greater control over skills, employment support programmes and the opportunity to integrate the transport system means that the people can be equipped with the skills, helped into work and also access employment opportunities.
- The third challenge is housing. Housing affordability varies across the region and will be more of an issue in some areas. Nevertheless housing as a share of income has increased in most neighbourhoods in the region over the past decade. Housing costs are already a large part of most families budgets - about a fifth for households in the North West, up from 15 per cent in the mid-1990s. Although significant decisions around housing policy are still taken by central government, there are opportunities – such as the drafting of the Greater Manchester Spatial Framework – for local leaders to exert influence.