1. THE PUZZLE OF WORKLESSNESS IN LONDON Ian Gordon Geography Department, LSE London and Spatial Economics Research Centre London School of Economics LSE London seminar 15 th February 2010

2. WHAT’s THE PUZZLE? ? HIGH WORKLESS RATE in MOST ‘SUCCESSFUL’ CITY Worst (un)employment rates of any UK region before recession Working-age employment rate still 2 nd lowest (behind NI) 2008/9 At 69%: cf. 73% across UK – and 78% in rest of Greater South East ? RELUCTANCE (over 30 years) to ACCEPT that: GSE not London is the functional (closed) labour market region Its higher unemployment (at least) relative to RGSE simply due to having many more residents with disadvantaging characteristics ? CHANGE in LONDON’s POSITION over PAST DECADE Broader concern with ‘worklessness’ → disclosure of relatively high levels of (voluntary?) inactivity among London WA pop Real deterioration in some elements of worklessness

3. OUTLINE 1.A bit of theory 2.Why demand doesn’t explain London’s level of worklessness 3.How far personal characteristics do 4.The puzzle of voluntary inactivity in London

4. 1. A Bit of Theory

5. 2 Key Perspectives on the Labour Market 1.It is a market: –Strong version = Thurow’s ‘price auction’ model: People choose to work or not at a going (market) wage –More generally: Supply, demand and their spatial/occ distribution interact and adapt strongly to each other and to shocks 2.But dealing in a very odd commodity: –Heterogeneous, subjective and recalcitrant Presenting major problems for recruitment and control –How to identify potential productivity and then get it realised → Likelihood of Thurow’s ‘job competition model Competition via (real / ascribed) characteristics Particularly for better / more secure jobs

6. Elements of Worklessness: Two classic (Keynesian) components of unemployment: Demand – deficiency (DD) Structural – frictional influences on job-worker matching (SF) Interact so that: DD*SF should give UE rate SF/DD should give Vac rate With Vac/UE measuring pressure of demand But spatial variations in UE rate only (not Vacs) also reflect personal characteristics of residents –So vacancy: unemployment ratio meaningless for area comparisons

7. 2. Why Demand Doesn’t Explain London’s Level of Worklessness

8. Looking for an Indicator of the Local Pressure of Demand In principle vacancy rates = best simple indicator but regular series have always been: very incomplete biased down for areas such as London occasional survey data (from Employer Skills Survey) shows: very different picture Strong demand pressure in London, close to that in west of GSE Because of openness of TTWA level sub-labour markets demand pressure reflects not only: local employment growth and (non-LM) migration but also both of these across hinterlands

10. Two Labour Market Geographies Contrasts in demand-pressure still essentially N-S: And changing north-south relativities simply reflect: recent employment growth differences + impact of national economy on speed of adjustment via labour migration Within north and south more local (urban-rural) differences reflecting primarily: population sorting and (marketable) personal characteristics Difference is that migration equilibrates demand differences but not compositional effects So geography of former is much smoother

12. North-UK unemployment rate trends: actual and modelled

13. Long Run Persistence in Conurbation Inactivity Levels

14. 3. How Far Personal Characteristics Do

15. Personal Characteristics and Labour Market Outcomes In ‘job competition’ view personal characteristics affect individuals’ chances of being in work via: the position they are allocated in queue for jobs as well as influences on their decisions to participate or not These characteristics may also be a product of labour market experience And how they matter is contingent in both: Prevailing employer attitudes, and The intensity of competition for jobs These are reflected in how population mix affects area level outcomes

16. Significant Influences on Chances of being Workless (GSE summer 2009) Housing tenure: mortgaged (-); social renter (+) Ethnicity/religion: white (-); muslim (+, esp for women); language difficulty at work (+) Family status: married/cohabiting (- - for men, + for women); women with child under 4 (+) Age: young (16-24 +); old (over 60 +) Education: no qualifications (+); later completion age (-) Health: long term limiting condition (+) Control for these leaves: Positive but non-significant London-GSE difference for UER But more substantial reamaining diff in inactivity rates

17. Significant Impacts on London/GSE diff

18. Demand slack, bumping down and marginalisation In job competition model, if wages don’t adjust to fall in demand: Redundant workers regain employment by moving down a level in job hierarchy Thus displacing others and Crowding the lowest tiers (where wages may adjust) beyond their capacity – leaving least desirable in unemployment Similar affects among workless push some into LT unemployment and inactivity Expect this to persist beyond upturn until point where slack is eliminated Cf London / GSE trends over 1980s/90s

19. Labour Market Slack && London-GSE unemployment

20. Trend Looked Rather Good, but... Convergence in unemployment rates stopped soon after And it was not really evident in activity rates: Reflected some special factors: Growth of London’s student population And of Muslim population with low female employment rates But more general growth in numbers reporting lack of interest in work (as well as lack of action to seek)

21. Trends in London Worklessness Relative to RGSE 1996-2009

22. The London-RGSE Inactivity Rate Gap 1992-2005

23. 4. The Current Puzzle: Rising Voluntary Inactivity in London

24. 3 Conjectures about Voluntary Worklessness in London Greater concentration of people living outside the economic mainstream: Selectively attracted to / produced by the metropolitan environment Particular lack of part-time employment opportunities Impact of recent immigration from poor countries on wages in entry-level jobs

25. Alternative Life Styles/Conditions Particular non-economic attractions of London may include activities given priority over work And/or stresses of metro life may alienate more people from social interactions including work

26. London’s Lack of Part-time Work Particularly salient for (voluntary) inactive: 49% nationally ‘expected’ in PT not FT work Particularly lacking in London: 20% of London jobs, 22% of Londoners; 27% in RUK 89% of Central London jobs are FT Partly reflects pop mix ? or supply-side constraints More singles in London Lack of local, car accessible jobs ? Or child care? But larger PT:FT earnings gap suggests primarily demand-side issue

27. Influences on PT Labour Demand Fractional demands for partic jobs In small establishments Concentration of demand in peak hours For local/personal service jobs Exploiting a reserve of cheap labour Where others not available on FT basis All likely to be less relevant in London ? Scale economies → more large establishments less local work + 24/7 consumption culture and immigrant labour pools

28. Immigration and the Bottom End of the Labour Market It is widely understood that immigration has more/less neutral impact on balance of labour supply/demand: → no predictable impact on average wages / earnings levels: –No sig effects actually found in UK But may affect distribution of earnings etc., depending on complementarity with domestic labour supply Some evidence of falling earnings at the bottom In London case, can see: New migrants from poor countries initially concentrated in bottom 20% of jobs Have depressed (relative/absolute) earnings there – by up to 15% in period of peak arrivals at/after millennium Inducing employment growth there – but reducing employment incentives for those with no access to other job types Potentially → growth of ‘voluntary’ inactivity

29. In-migration from Overseas (per cap)

30. London Migrant Jobs by Type and Quintile 2005-6

31. Relation between Years in UK and Working in Bottom Quintile Jobs for Migrants from Poor Countries

32. Bottom Quintile Earnings

33. Looking for Evidence on These ‘Alternative Life Style’ via 2000 Psychiatric Morbidity Survey Controlling for mental illnesses / depression and drug / cannabis use Did not substantially reduce London differential ‘Part-time Job Gap’ + ‘Migrant Wage’ effects tested by: Inserting measures of salience for indivs in LFS micro-data analyses for years 1996-2009 – across GSE Measures are logit estimates for probability of: Being in PT rather than FT job Working in bottom quintile (lowest paid) job (occ/role) not higher Estimated across UK in relation to personal characteristics Interacted with: London dummy + share of PT jobs (for PT) does it explain gap ? London + relative wages in bottom quintilre (for Migrant Wage) does it explain change in gap ?

34. Still Puzzling Away - But … Evidence so far (at least) consistent with Migrant Wage story –Tho compositional factors also contribute to upward drift in London inactivity Still no evidence of substantial connections with local employment change –Tho U/E in Outer London may be a little higher due to lack of job growth there Dominant explanation for high London worklessness is still personal characteristics –Or rather: the way the labour market treats these –In any case not primarily a simple matter of ‘skill’