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Long-run employment projections for London 2016

In June, GLA Economics published its latest employment projections for London, and the supporting data on London Datastore. The projections use updated data to project the number of jobs in London broken down by sector and at the borough level. To support these judgements GLA Economics has developed a longer back series of employment and GVA data to 1971. Alongside this report GLA Economics has published consultancy studies on employment site capacity, and transport accessibility, which it has used to form its judgements on where jobs might be located across boroughs.

The report also provides projections for the numbers of jobs by occupation, and the qualifications required for the jobs. This is considered against projections of London residents in employment, and their qualifications. The conclusion is that the London economy is likely to remain broadly in balance both in terms of the demand and supply of labour, as well as the qualifications sought, and the qualifications held.

The extension of the back series has made more apparent the shift towards service activities in London over past decades. The decline in manufacturing, construction and utilities in the 1970s and 1980s was only partially offset by growth in business services. Subsequently the London economy has become more specialised in business services, particularly internationally traded services, and so less like the UK economy. Growth has benefited from agglomeration economies, where sectors such as Professional services, and Finance, and insurance tend to locate in central areas of London (see Figure A1).

Figure A1: Change in broad London sectors, 1971-2015


Source: GLA Economics

The central projection estimates that jobs in London will grow from 2015 at an annual average rate of 0.76 per cent, equivalent to 45,000 jobs per annum, to reach 6.748 million in 2041 (see Figure A2).

Figure A2: 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 are expected to grow strongly, accounting for 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 growth in jobs is also expected in the information and communication sector (computer programming and consultancy, film and TV, publishing and telecommunications for example), education, health and social work, administrative and support services (temporary employees, cleaning, office administration and private security for example), and accommodation and food services (hotels and restaurants for example).

At the local authority level strong growth in jobs is projected for Tower Hamlets, the City of London, and Westminster, along with other central London boroughs. These projections make use of inputs on employment trends, employment site capacity, and transport accessibility to reach a view on the distribution of jobs across London. The expectation is that there will be increased pressure on central areas as firms seek to continue to reap the benefits of agglomeration economies, and further intensification in the use of available employment space. It may also lead to the development of particular areas in the outer boroughs to provide the employment space needed to support the expected growth in jobs.

As with previous iterations, the methodology used to produce the projections relies on historic productivity (output divided by employment). Specifically the report does not make any assessment of possible outcomes from the EU referendum result. However, recently, productivity growth has diverted from trend. In the 2008 to 2015 period alone, employment has grown at an annual average growth rate of 1.7 per cent or 90,000 jobs per year. This contrasts starkly to an average annual rate of jobs growth of 0.2 per cent or 10,000 per year, over the 37-year history from 1971 to 2008. At the same time, GVA in London has grown in the recent period by an average annual rate of 2.9 per cent, which compares to the estimated 2.4 per cent per annum experienced between 1971 and 2008. So while economic growth has picked up, the rate of jobs growth has accelerated significantly.

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 A3 which looks at productivity in London and the UK over the long run, and so 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. The slowdown in productivity growth has been more noticeable at a national level. Arguably, at a London level the microeconomic benefits of agglomeration economies, and the disproportionate importance to the economy of internationally traded services, may be outweighing the macroeconomic factors apparent at a national level.

Figure A3: Productivity in London and the UK over the long run


Source: GLA Economics

The development of London’s industrial structure is projected to increase the demand for professionals. Professional occupations, and managers, directors and senior officials are projected to see large increases accounting for three quarters, or 979,000, of additional jobs between 2014 and 2041. The number of managers, directors and senior officials is expected to increase by 424,000, a year-on-year increase of 1.7 per cent, while a total of 555,000 more jobs in professional occupations (equivalent to a 1.3 per cent year-on-year increase) is expected between 2014 and 2041. A quarter of the increase in professional occupations is expected to come from the information and communication sector, and half of the increase in managers, directors and senior officials will be in the professional services sector.

The shifts in employment and occupations translate into a demand for a more highly skilled workforce. The number of jobs in London requiring higher degrees is projected to rise by 1.4 per cent per annum over the 2014 to 2041 period, and for jobs requiring ordinary degrees by 1.1 per cent. The largest increase in both cases is in professional occupations, 204,000 jobs require higher degrees, and another 270,000 require degrees. It is also expected that there will be a significant expansion of graduates working as managers, directors and senior officials, 90,000 more jobs will require higher degrees while another 206,000 jobs will require ordinary degrees (see Figure A4).

Figure A4: Changes in qualification demand (2002 to 2041)


Source: GLA Economics

There will be an additional and potentially significant level of education and training requirement each and every year from replenishing those that leave their occupation. Analysis suggests that at least 700,000 people left their occupation in London in 2015, which compares to the projection of a ‘net’ increase of just over 45,000 jobs a year.

In terms of labour supply, London’s population aged between 16 and 64 is projected to increase from 5.8 million in 2014 to over 6.8 million by 2041. Employment of London residents is expected to grow by more reflecting the recent trends for the gap between the London and national employment rate to close, and the increased likelihood for individuals to stay in the labour market both before and after retirement age. Allowing for potential trends in commuting, the employment and population trends do not seem out of line with a balanced labour market (in terms of quantities).

The projected growth in London’s population in employment and qualified to at least ordinary degree level is broadly similar to the projected growth in London jobs at this qualification level. This suggests that the recent increases in the rate at which young people seek degree qualifications has reached a level broadly consistent with the projected needs of London’s labour market.

For more information download the latest set of employment projections.