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London labour market projections 2017

In August GLA Economics published its latest employment projections for London. The projections use updated employment and GVA data to project the number of jobs in London broken down by sector and at the borough level.

The central projection estimates that jobs in London will grow from 2016 at an annual average rate of 0.78 per cent a year, equivalent to 49,000 jobs, to reach 6.907 million in 2041 (see Figure A1).

Figure A1: Historic and projected employment in London (thousands), 1971-2041 

Source: GLA Economics

Similarly to the last set of projections, jobs in the professional, real estate, scientific and technical sector is expected to grow strongly, accounting for over a third of the total increase expected in London to 2041. Jobs in this sector include management consultancy, accounting, legal, real estate, advertising and architecture amongst other areas. Strong employment growth is also expected in the administrative and support services (temporary employees, cleaning, office administration and private security for example), accommodation and food services (hotels and restaurants for example), information and communication sectors (computer programming and consultancy, film and TV, publishing and telecommunications for example), education and health sectors. The six sectors account for nearly three fifths of the expected total London increase in jobs to 2041.

The borough projections take into consideration trends in jobs growth, and expected employment site developments. Boroughs with areas within the Central Activities Zone (CAZ) – (The CAZ covers portions of the London boroughs of Camden, Hackney, Islington, Kensington and Chelsea, Lambeth, Southwark, Tower Hamlets, Wandsworth, and Westminster, as well as the total area of the City of London) – account for 35 per cent of the annual projected growth in jobs, or 16,900 jobs per year. The annual growth rate in jobs, however, is almost identical with that for London as a whole at 0.77 per cent a year. It is differences between boroughs which is more pronounced whether for those with an area in the CAZ, or for all boroughs in London. For example, in central London Kensington and Chelsea is one of the London boroughs with relatively low growth in jobs (both in terms of absolute numbers and growth rate), while Tower Hamlets has the strongest growth in absolute terms of all London boroughs. Still the employment projections estimate that there will be jobs growth in all boroughs.

As with previous iterations, the methodology used to produce the projections relies on historic productivity (output divided by employment). However, recently, productivity growth has significantly diverted from trend.

In the five years since 2011 alone, employment has grown by 16.1 per cent, which equates to an annual average growth rate of 3.0 per cent or 158,000 jobs per year. This contrasts starkly to a total growth of 6.9 per cent, or an annual average growth rate of 0.2 per cent or 7,900 jobs per year, over the 40-year history from 1971 to 2011. At the same time, however, in the five years since 2011 output in London has grown by an average annual rate of 3.0 per cent, which compares to the estimated 2.3 per cent per annum experienced between 1971 and 2011.

As a result of the exceptionally strong jobs growth compared to output growth, London (and the UK as a whole) has seen productivity growth stall. This is shown in Figure A2 which looks at productivity in London and the UK over the long run and over a number of economic cycles. The recent trend in productivity has been puzzling many respected organisations and economists with much research going into understanding the factors that may lie behind the puzzle.

Figure A2: Productivity in London and the UK over the long run

Source: ONS and GLA Economics

In response to the persistence of the recent productivity trend the Office for Budget Responsibility (OBR) has been revising downwards its GDP growth forecasts for the rest of this decade to an average of 2.1 per cent a year, and 2.0 per cent in 2021. This is consistent with what the OBR estimates for the UK’s long-term output potential. GLA Economics forecasts in the medium term average London GVA growth of around 2.5 per cent a year to 2018, consistent with the historic trend for growth of the London economy to be faster than the national trend. These projections take output growth after 2018 as declining at an exponential rate towards 2.0 per cent. As with the OBR this is a lower output growth rate than previous projections.

It should be noted that the implications of different productivity trends on GLA Economics’ employment projections are considered in the paper. This is done by considering a number of alternative employment projection scenarios, as well as an alternative methodology. Whilst these scenarios provide a means of sensitivity testing the central scenario, GLA Economics will continue to monitor the situation and review its methodology in the light of available information.

For more information on the latest set of employment projections please see: Historic jobs data and the projections are on London Datastore. While this report and other GLA Economics’ publications can be found on our publications page.