THE PUZZLE OF
WORKLESSNESS IN LONDON
Ian Gordon
Geography Department, LSE London and
Spatial Economics Research Centre
London School of Economics
LSE London seminar
15th February 2010
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 2nd 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
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
1. A Bit of Theory
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
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
2. Why Demand Doesn’t Explain
London’s Level of Worklessness
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
Vacancy Rate Enhanced Estimates 2001
Vacancy Rate Raw Estimates
ESS 2001
England_ttwa_1991_area.shp
-2 - -1 Std. Dev.
-1 - 0 Std. Dev.
Mean
0 - 1 Std. Dev.
1 - 2 Std. Dev.
2 - 3 Std. Dev.
England_ttwa_1991_area.shp
-2 - -1 Std. Dev.
-1 - 0 Std. Dev.
Mean
0 - 1 Std. Dev.
1 - 2 Std. Dev.
2 - 3 Std. Dev.
> 3 Std. Dev.
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
Pressure of Demand 2001
(version 12..12.08)
England_ttwa_1991_area.shp
-3 - -2 Std. Dev.
-2 - -1 Std. Dev.
-1 - 0 Std. Dev.
Mean
0 - 1 Std. Dev.
1 - 2 Std. Dev.
2 - 3 Std. Dev.
Non-Demand-Deficient Component
of Unemployment
2001
(version 12.12.08)
England_ttwa_1991_area.shp
< -3 Std. Dev.
-3 - -2 Std. Dev.
-2 - -1 Std. Dev.
-1 - 0 Std. Dev.
Mean
0 - 1 Std. Dev.
1 - 2 Std. Dev.
2 - 3 Std. Dev.
North-UK unemployment rate
trends: actual and modelled
Long Run Persistence in
Conurbation Inactivity Levels
3. How Far Personal Characteristics Do
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
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
Significant Impacts on London/GSE diff
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
Labour Market Slack &&
London-GSE unemployment
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)
Trends in London Worklessness
Relative to RGSE 1996-2009
The London-RGSE Inactivity Rate
Gap 1992-2005
8
7
6
5
4
3
2
1
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
4. The Current Puzzle: Rising Voluntary
Inactivity in London
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
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
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
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
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
(per cap)
0
.01
.02
.03
In-migration from Overseas
1975
1980
1985
1990
1995
2000
year
LONDON
SWest
EMids
NWest
Wales
SE & E
WMids
Yorks&H
North
Scot
2005
2010
London Migrant Jobs by Type and Quintile
2005-6
Migrant
Origin
Years
in the
UK
Bottom
quintile
(<£6.4
ph)
2nd
quintile
(£6.4£7.5)
3rd
quintile
(£7.5£9.9)
4th
quintile
(£9.9£13.5)
Top
quintile
(> £13.5
ph)
..
21%
20%
21%
19%
20%
0-3
18%
14%
12%
21%
35%
>3
19%
15%
16%
22%
28%
Asylum
Countries
AC
0-3
31%
24%
14%
13%
18%
>3
23%
20%
14%
21%
22%
Other Low
Wage
countries
OLWC
0-3
46%
20%
10%
14%
11%
>3
25%
19%
16%
17%
22%
NonMigrant
High Wage
countries
HWC
Source: Annual Population Survey 2005-6
Relation between Years in UK and Working in Bottom Quintile Jobs
for Migrants from Poor Countries
0.50
Proportion in Bottom Quintile
0.45
0.40
0.35
0.30
0.25
0.20
0.00
10.00
20.00
Years in the UK
30.00
40.00
0
.5
1
1.5
2
Bottom Quintile Earnings
1975
1980
1985
1990
1995
2000
year
LONDON
SWest
EMids
NWest
Wales
SE & E
WMids
Yorks&H
North
Scot
2005
2010
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 ?
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’