Do Britain’s secondary cities perform better if judged on GVA per head, rather than GVA per worker?

Hamburg: unexpectedly productive. Image: Getty.

The latest instalment of our series, in which we use the Centre for Cities’ data tools to crunch some of the numbers on Britain’s cities.

For the last few weeks, I’ve been trawling Centre for Cities’ data to first demonstrate, and then explain, a worrying piece of British exceptionalism. With the exception of London, our big cities are economically much weaker than their peers in France or Germany, Italy or Spain. Birmingham, Manchester, Glasgow and Leeds all have significantly lower productivity, expressed as GVA per worker, than similarly sized cities like Hamburg, Barcelona or Marseille.

Digging through the numbers, I found that they have smaller service sectors; lower numbers of businesses; don’t produce many patents; and have a lot of workers with low skills. I have another theory about what’s gone wrong in Britain – one which, if you’ve ever been to CityMetric before, you can probably guess. But before getting into that I want to address a question a couple of people have asked about the data.

In short, it’s this: is GVA per worker a misleading measure? Since the financial crisis, unemployment in Britain – in contrast to many European nations – has stayed low. GVA per worker is a measure that might flatter cities with higher unemployment, because they have fewer workers relative to their size. Perhaps GVA per head would be a fairer measure – on one which, the implication goes, British cities a more likely to punch their weight.

When someone first threw this argument at me, I was slightly torn, if I’m honest. The measure is clearly limited in its usefulness: taken to extremes, a city with one worker and 999,999 people on the dole could in theory have an enormous GVA per worker, but that doesn’t mean it’s a healthy economy.  

And yet, the thing we’re interested in here is productivity – the rate at which value is produced. To know that, you need to have at least some idea of the amount of work being done – so the number of workers seems a more useful measure than raw population.

That, though, is angels-on-the-head-of-a-pin stuff. We can go beyond that, to actually compare how to two measures work out in practice.

Here’s a scatter graph plotting GVA against population size. You’d expect these to be roughly correlated – more people generate more wealth. But that correlation is obviously not perfect, as some places are richer than others; and generally speaking cities that are further left than you’d expect are underperforming, while those to the right are over-performing:

Click to expand.

You can see that both Milan and Naples are outliers: northern Italy is surprisingly rich, southern Italy surprisingly poor. You can also see that German cities (in black) are generally also more productive than the norm.

But from a British perspective, it’s the position of Birmingham and Manchester that’s most concerning: two big cities that look way less affluent than you’d expect. Indeed, both Hamburg and Munich are significantly smaller – yet also significantly wealthier.

The key question, though, is what does switching from GVA per head do to the rankings? Here are our 19 cities, ordered by GVA per worker:

Click to expand.

And here they are ordered by GVA per head:

Click to expand.

Switching measure does change the rankings, a little. On the per head measure, Seville looks significantly better, going from worst to best performing of the three Spanish cities: that suggests a lower employment rate than in Valencia or Barcelona. And Naples goes from a little way behind the pack to way, way behind which I think suggests a much higher one, although my head is starting to hurt.

At any rate, that suggests that judging cities on GVA per head, rather than GVA per worker, can make a difference.


But it doesn’t change the fact that the British cities are clustered near the bottom. Okay, Glasgow and especially Leeds do rather better on the per head measure than they do on the per worker one. But Birmingham and Manchester still look terrible. Britain's secondary cities are still, as a group, performing worse than those of the other four countries.

To put it bluntly: whichever measure you use, something has clearly gone wrong in Britain's big cities. The only question is what.

Next time, in the final instalment of this mini-series, I’m going to put forward a theory as to what that might be. Until then, why not have a play with the Centre for Cities “Competing with the Continent” database?

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and also has a Facebook page now for some reason. 

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“Stop worrying about hairdressers”: The UK government has misdiagnosed its productivity problem

We’re going as fast as we can, here. Image: Getty.

Gonna level with you here, I have mixed feelings about this one. On the one hand, I’m a huge fan of schadenfreude, so learning that it the government has messed up in a previously unsuspected way gives me this sort of warm glow inside. On the other hand, the way it’s been screwing up is probably making the country poorer, and exacerbating the north south divide. So, mixed reviews really.

Here’s the story. This week the Centre for Cities (CfC) published a major report on Britain’s productivity problem. For the last 200 years, ever since the industrial revolution, this country has got steadily richer. Since the financial crash, though, that seems to have stopped.

The standard narrative on this has it that the problem lies in the ‘long tail’ of unproductive businesses – that is, those that produce less value per hour. Get those guys humming, the thinking goes, and the productivity problem is sorted.

But the CfC’s new report says that this is exactly wrong. The wrong tail: Why Britain’s ‘long tail’ is not the cause of its productivity problems (excellent pun, there) delves into the data on productivity in different types of businesses and different cities, to demonstrate two big points.

The first is that the long tail is the wrong place to look for productivity gains. Many low productivity businesses are low productivity for a reason:

The ability of manufacturing to automate certain processes, or the development of ever more sophisticated computer software in information and communications have greatly increased the output that a worker produces in these industries. But while a fitness instructor may use a smartphone today in place of a ghetto blaster in 1990, he or she can still only instruct one class at a time. And a waiter or waitress can only serve so many tables. Of course, improvements such as the introduction of handheld electronic devices allow orders to be sent to the kitchen more efficiently, will bring benefits, but this improvements won’t radically increase the output of the waiter.

I’d add to that: there is only so fast that people want to eat. There’s a physical limit on the number of diners any restaurant can actually feed.

At any rate, the result of this is that it’s stupid to expect local service businesses to make step changes in productivity. If we actually want to improve productivity we should focus on those which are exporting services to a bigger market.  There are fewer of these, but the potential gains are much bigger. Here’s a chart:

The y-axis reflects number of businesses at different productivities, shown on the x-axis. So bigger numbers on the left are bad; bigger numbers on the right are good. 

The question of which exporting businesses are struggling to expand productivity is what leads to the report’s second insight:

Specifically it is the underperformance of exporting businesses in cities outside of the Greater South East that causes not only divergences across the country in wages and standards of living, but also hampers national productivity. These cities in particular should be of greatest concern to policy makers attempting to improve UK productivity overall.

In other words, it turned out, again, to the north-south divide that did it. I’m shocked. Are you shocked? This is my shocked face.

The best way to demonstrate this shocking insight is with some more graphs. This first one shows the distribution of productivity in local services business in four different types of place: cities in the south east (GSE) in light green, cities in the rest of the country (RoGB) in dark green, non-urban areas in the south east in purple, non-urban areas everywhere else in turquoise.

The four lines are fairly consistent. The light green, representing south eastern cities has a lower peak on the left, meaning slightly fewer low productivity businesses, but is slightly higher on the right, meaning slightly more high productivity businesses. In other words, local services businesses in the south eastern cities are more productive than those elsewhere – but the gap is pretty narrow. 

Now check out the same graph for exporting businesses:

The differences are much more pronounced. Areas outside those south eastern cities have many more lower productivity businesses (the peaks on the left) and significantly fewer high productivity ones (the lower numbers on the right).

In fact, outside the south east, cities are actually less productive than non-urban areas. This is really not what you’d expect to see, and no a good sign for the health of the economy:

The report also uses a few specific examples to illustrate this point. Compare Reading, one of Britain’s richest medium sized cities, with Hull, one of its poorest:

Or, looking to bigger cities, here’s Bristol and Sheffield:

In both cases, the poorer northern cities are clearly lacking in high-value exporting businesses. This is a problem because these don’t just provide well-paying jobs now: they’re also the ones that have the potential to make productivity gains that can lead to even better jobs. The report concludes:

This is a major cause for concern for the national economy – the underperformance of these cities goes a long way to explain both why the rest of Britain lags behind the Greater South East and why it performs poorly on a

European level. To illustrate the impact, if all cities were as productive as those in the Greater South East, the British economy would be 15 per cent more productive and £225bn larger. This is equivalent to Britain being home to four extra city economies the size of Birmingham.

In other words, the lesson here is: stop worrying about the productivity of hairdressers. Start worrying about the productivity of Hull.


You can read the Centre for Cities’ full report here.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites

Want more of this stuff? Follow CityMetric on Twitter or Facebook