By Aadya Bahl - Research Intern at Greater Manchester Chamber of Commerce
Labour productivity has always been a critical focus of empirical research in the UK. However, much of this research has been conducted at a national level, overlooking potential variations in productivity at the local level. Recognising this gap, our research endeavours to address this issue by delving into labour productivity growth in Greater Manchester between 2018 and 2021.
Using data sourced from the Office of National Statistics, our study unveils intriguing insights into the key sectors that drive labour productivity growth and those contributing to its decline in Greater Manchester. Among the sectors leading the way in boosting productivity are Manufacturing, Information and Communication, and Education. On the other hand, we find that sectors like Finance and Insurance, Professional, Scientific, and Technical Services, and Other Services are driving declining productivity trends (refer to Figure 1 below).
While most local authorities in Greater Manchester, barring Trafford and Bolton, have witnessed a shift towards more productive sectors, variations in productivity growth patterns persist among them. For example, Figure 2 highlights that Manchester experienced the greatest decline in productivity in the Human Health and Social Work activities and Other Services sector. In contrast, Oldham faced challenges in the Real Estate and Financial and Insurance sectors. Additionally, Salford demonstrated positive growth in Labour Productivity for the Arts and Entertainment sector and Construction sector, while other local authorities experienced declines in these areas. Bolton stood out as an exception, showing no change in Labour Productivity growth for Human Health, while all other local authorities faced declines.
Another significant finding from our research is the presence of job polarisation within the Greater Manchester economy (see Figure 3). This phenomenon indicates a shift in employment trends, with certain sectors experiencing growth in professional and technical occupations but a decline in sales, customer service, and process-orientated roles. The Construction sector, in particular, displayed notable shifts in employment across various occupation types, pointing to a potential skills mismatch in the local economy due to job polarisation. Such mismatches can create challenges for displaced workers seeking to transition to higher-skilled or lower-skilled roles, resulting in a misalignment between available skills and job requirements.
Our study's results not only contribute to the understanding of labour productivity variation in the UK economy but also challenge past empirical work that primarily identified Manufacturing and ICT sectors as drivers of diminishing labour productivity growth. The findings underscore the importance of adopting a comprehensive and localised approach to tackle productivity challenges in Greater Manchester.
Based on our analysis, we hypothesise a skills mismatch in the local economy, emphasising the urgent need to bridge the skills gap and promote efficient labour reallocation. To address this mismatch effectively, targeted training programmes should be developed, considering the transferability of skills and sector-specific needs. By tailoring training initiatives to address individual organisational requirements, we can overcome skills mismatches, promote within-firm productivity, and ultimately cultivate a more productive sector and local economy.
For more information about our research, contact the Chamber's GM Local Skills Improvement Plan team via gmlsip@gmchamber.co.uk.