Scottish Index of Economic Resilience

Scottish Index of Economic Resilience

Scottish Index of Economic Resilience Those involved in measuring the progress of local economies face the classic dilemma of seeing the woods from the trees. As more indicators have become available, reaching a balanced judgement has become more difficult, with the inevitable temptation to focus on those indicators which produce the most positive results. At the same time the current economic recession has diverted attention from the underlying strengths and challenges facing each local economy, to more immediate matters of dealing with rising unemployment and local job losses. As a response to these issues, GEN has developed a Scottish Index of Economic Resilience, a tool which examines the performance of each of Scotland s 32 Council areas against five key domains and 17 critical determinants of economic resilience. This short introductory paper highlights some of the most significant findings. It summarises each of the five key determinants of resilience and sets out the top five performers in each domain, before going on to discuss changes over the last ten years. The five domains are: Sectoral Mix: including the degree of employment diversification, employment within traditionally stable economic sectors and employment in knowledge intensive sectors. The Workforce: focusing on the quality of human capital, the role of migration in smoothing demand for local labour, and the effective functioning of the local labour market. Enterprise: recognising the importance of a dynamic business base to a successful local economy. Labour Market: reflecting the extent to which no/low skills, high unemployment and levels of benefit dependency constrain local economies. Economic Dynamism: capturing the combined effects of population, income and employment growth at the local level.

The pie chart below sets out the weight allocated to each domain, with sectoral mix and workforce accounting for half of the final assessment. The Index can be reviewed for each local economy by all six domains using both actual values and a scoring system which measures each indicator/domain on a range from 1 1. It can also be expressed in a diagram form, see below, which assesses each area against the, allowing the strengths and weaknesses to be identified quickly. Weighting of Domains Economic Dynamism 15% Enterprise 15% Labour Market 2% Workforce 2% Sectoral Mix 3% Sectoral Mix Economic Dynamism 1 9 8 7 6 5 4 3 2 1 Workforce An Example of a Balanced Scorecard Local Area Scottish Average Labour Market Enterprise

Headline Results Economic resilience varies considerably across Scotland, highlighting the importance of local factors in determining the strength of an economy. This emphasises the role that local authorities can play in influencing the factors which impact on resilience and helping to define the economic fortunes of their area. Overall performance on the Index is determined by resilience measured on a number of weighted domains, which provide a greater level of detail on the strengths and weaknesses of each area. There is considerable variation in performance on each domain reflecting the relative strengths of individual economies rural areas typically perform better on the Enterprise Index while major cities perform better on the Workforce and Labour Market Domains. The most resilient local economies include some of the recent success stories of the Scottish economy. It is noticeable however that there are considerable differences in the factors which contribute to local resilience, and this is reflected in the reports on individual domains set out in later sections. 8 7 6 5 4 3 2 1 Top Five Resilient Economies 27 Overall index score Average index score Edinburgh, City of E. Renfrewshire Highland Stirling Aberdeen City Overall index score Source: Scottish index of Economic Resilience, 29, GEN As well documented, Edinburgh is recognised as one of the most resilient economies in Scotland, mostly due to its scale, and the quality and flexibility of its workforce. More rural localities, including, East Renfrewshire and The Highlands have developed resilient economies. In these cases the proximity of major cities/commercial centres is a significant feature of their resilience. The strength of Stirling s skill base and sectoral mix has helped foster the region s resilience. Aberdeen City s workforce is one of the most flexible in Scotland. While there is often a perception that the major successes of the past ten years have been in the larger city economies, the Index also highlights improvements in some areas facing the greatest challenges in the mid 199s. Although some of these areas continue to lag behind on some indicators, the scale of changes over the past ten years have been remarkable. Top Five Improvers 1997-27 Overall index score improvement (%) Average Scottish score improvement E. Ayrshire Clackmannanshire N. Lanarkshire Inverclyde W. Dunbartonshire Improvement of overall index score (97-7) Source: Scottish I ndex of Economic Resilience, 29, GEN East Ayrshire has witnessed a notable increase in the factors influencing the quality of its workforce. Clackmannanshire has witnessed substantial population, employment and income growth in recent times, the region is now benefiting from better links to the central belt as well as a restructured business base. The enhancing and reskilling of the labour market in North Lanarkshire has been a major factor in its improved resilience score. The sectoral mix and focus on knowledge intensive and public administration posts has boosted the resilience of both Inverclyde and West Dunbartonshire.

Sectoral Mix One of the major issues facing local economies over the past forty years has been over-dependence on industrial sectors, with over representation in particular niches ultimately leading to localised job losses as global trends cause production to transfer abroad. The key thrust of economic development policy has been to develop more competitive and balanced local economies, with an emphasis on knowledge and service based employment. The sectoral mix domain is one of the most important domains in the Index and has been designed to incorporate vulnerable elements of the employment base, foundation employment as represented by the public sector and sectors with growth potential, both in manufacturing and services, and captured by knowledge intensive employment. 8 7 6 5 4 3 2 1 Top Five Local Economies: Sectoral Mix 27 Inverclyde Edinburgh, City of W. Dunbartonshire Highland Glasgow City Sectoral Mix score Highest performing areas on Sectoral Mix Source: Scottish I ndex of Economic Resilience, 29, GEN Over the past ten years Inverclyde has further transformed its economy significantly reducing its dependence on specialist and declining sectors, increasing employment in both public and knowledge intensive employment. West Dunbartonshire has also seen a marked decrease in vulnerable employment sectors and a doubling of public sector employment, moving it from 1th in 1997 to 3rd in 27. Glasgow and Edinburgh are typical of successful major UK cities, performing well with regard to knowledge intensive employment and the service economy, while the Highlands is characterised by a diverse economy, new knowledge based sectors and a low presence of declining sectors.

8 7 6 5 4 3 2 1 Sectoral Mix continued Top Five Improvers: Sectoral Mix 1997-27 Inverclyde Clackmannanshire E. Renfrewshire W. Lothian W. Dunbartonshire Score improvement on Sectoral Mix (%) Improvement of Sectoral Mix score (1997-27) Source: Scottish I ndex of Economic Resilience, 29, GEN Inverclyde has the most resilient sectoral mix as many of its employees now work in knowledge intensive sectors like telecommunications and electronics as well as significant proportion of public administration posts. Clackmannanshire has seen a considerable move away from vulnerable and declining employment sectors, such as mining/resource extraction related employment and manufacturing. East Renfrewshire has seen the most rapid increase in the diversity of its business base, including growth in its knowledge intensive and service based sectors. West Dunbartonshire and West Lothian have seen significantly fewer employees in vulnerable and declining sectors now than in 1997 and benefit from stable public sector jobs which have increased significantly over the last ten years.

Workforce This domain is concerned with the ability of the labour market to respond to changing economic conditions, both growth and decline. There are a number of key issues which affect the ability of the labour market to respond to such shocks, which include the quality of human capital within the local economy and the flexibility of the local labour market. The importance of economic migration has increased over the last ten years, with many skills shortages being addressed by highly qualified migrants, often from EU Member States. This brings a new dynamic to the labour market. 8 7 6 5 4 3 2 1 Top Five Local Economies: Workforce 27 Workforce score E. Renfrewshire Edinburgh, City of Aberdeen City E. Dunbartonshire Perth & Kinross Highest performing areas on Workforce Source: Scottish index of Economic Resilience, 29, GEN East Renfrewshire and East Dunbartonshire benefit from having the highest proportion of the workforce with Level 4, or better, qualifications. However unlike East Renfrewshire, the East Dunbartonshire economy suffers from a higher proportion of long term unemployment. Edinburgh and Aberdeen s resilience in this domain is bolstered by significant migratory effects as well having a greater flexibility in their workforce. There are a number of local authority areas which score well in terms of the quality of the workforce but also suffer from significantly high levels of long term unemployment, most notably Dundee and Glasgow. Top Five Improvers: Workforce 1997-27 Score improvement on Workforce (%) E. Ayrshire Falkirk S. Ayrshire Glasgow City N. Lanarkshire Improvement of Workforce score (97-7) Source: Scottish I ndex of Economic Resilience, 29, GEN East Ayrshire has seen a significant increase in the quality of its workforce, there are now twice as many adults gaining Level 4 qualifications or above than in 1997. East Ayrshire has also benefited from a marked increase in economic migration. Falkirk has seen the second largest increase in the proportion of its workforce gaining Level 4 or above qualifications, an increase from 13% to 28%. Glasgow, South Ayrshire and North Lanarkshire have all seen marked increases across qualification levels, increased economic migration and a fall in long term unemployment levels. Some local authority areas are being left behind. The gap between the areas with the lowest proportion of the workforce qualified to level 4 and above (24%) and the highest (48%), has grown since 1997.

Enterprise High levels of enterprise and a dynamic business base will promote resilience within a local economy. Thriving businesses will be more able to restructure and diversify in response to economic shocks, and local conditions which support and promote the start-up, growth, and survival of new businesses will ensure that opportunities can be fully exploited as they arise. 8 7 6 5 4 3 2 1 Top Five Local Economies: Enterprise 27 Enterprise score Aberdeenshire Orkney Islands E. Renfrewshire E. Dunbartonshire Angus Highest performing areas on Enterprise Source: Scottish index of Economic Resilience, 29, GEN The top-ranked local authorities on the enterprise domain in 27 were Aberdeenshire, Orkney Islands, East Renfrewshire and East Dunbartonshire each of which score reasonably well across all three indicators, rather than demonstrating exceptionally high scores in any single indicator. There is a tendency for rural economies to perform strongly on the enterprise domain, with rural economies typically dominated by small sized businesses and high levels of self employment. Interestingly, the Orkney Islands is the best performing area in terms of levels of self employment and business density but does not score well in the level of new business start ups. This highlights the importance of digging deeper when presenting these results at the local level. Top Five Improvers: Enterprise 1997-27 Score improvement on Enterprise (%) Angus Argyll & Bute Stirling N. Lanarkshire Scottish Borders Improvement of Enterprise score (97-7) Source: Scottish I ndex of Economic Resilience, 29, GEN In spite of fast growing urban economies and efforts to increase city based business start ups, the greatest improvers have been rural economies and areas with strong local economic and access to larger city economies. These greatest improvers include Angus, Argyll and Bute and Stirling, but all for different reasons. Argyll and Bute and Stirling recorded the highest increases in new VAT registrations while Angus witnessed the highest increase in the proportion of the workforce in self-employment. Edinburgh and Glasgow are ranked 17th and 22nd respectively, and have each fallen in the rankings since 1997 (by 6 and 8 places respectively). This points to some evidence of a balance of power shift over the past decade, with the more affluent outlying parts of city-regions developing faster, and sometimes overtaking, the cities.

Labour Market The purpose of this domain is to identify the extent to which resilience and the ability to adjust is affected by a labour force which is characterised by high levels of worklessness and low skills. While the workforce domain focuses on higher level skills, this domain focuses on the opposite end of the skills continuum. 1 9 8 7 6 5 4 3 2 1 Top Five Local Economies: Labour Market 27 Labour Market score E. Renfrewshire E. Dunbartonshire Shetland Islands Orkney Islands Edinburgh, City of Highest performing areas on Labour Market Source: Scottish index of Economic Resilience, 29, GEN In parallel with the workforce domain, East Renfrewshire and East Dunbartonshire as well as Edinburgh have the most resilient labour market conditions. Incapacity claimant rates in the least resilient economies are more than double those in the best performing areas. Job Seekers Allowance claimant levels can be three times as high between most and least resilient economies. East Renfrewshire and the Shetland Islands recorded the biggest fall in the number of unfilled vacancies over the period 24-7, with reductions of 42% and 41% respectively. Top Five Improvers: Labour Market 1997-27 Score improvement on Labour Market (%) Glasgow City N. Lanarkshire W. Dunbartonshire Clackmannanshire E. Ayrshire Improvement of Labour Market score (97-7) Source: Scottish I ndex of Economic Resilience, 29, GEN Interestingly and of greater significance is the improvements in resilience that have been achieved by several of the West Central Scotland economies, including Glasgow, North Lanarkshire and West Dunbartonshire. In Glasgow, this increase can be largely attributed to a reduction in the proportion of adult population claiming incapacity benefit, which has fallen by 33%. North Lanarkshire witnessed a fall of 23%. North Lanarkshire also succeeded in improving its resilience score by a 33% reduction in the proportion of adult population claiming JSA. Clackmannanshire witnessed a 36% reduction in JSA claimants.

Economic Dynamism Sustained growth and stability, in terms of population, employment and earnings growth, is a key feature of a resilient economy. Economies which have witnessed sustained growth and prosperity in recent times will be in good shape to handle the downside effects of the business cycle. On the contrary, an economy which hasn t witnessed recent growth is likely to be more exposed to the recession. Economic dynamism is captured by measuring the combined effects of population, income and employment growth at the local level. Top Five Local Economies: Economic Dynamism 27 1 9 8 7 6 5 4 3 2 1 Orkney Islands Aberdeenshire Highland S. Lanarkshire Clackmannanshire Economic Dynamism score Highest performing areas on Economic Dynamism Source: Scottish I ndex of Economic Resilience, 29, GEN In 1997, the growth witnessed in the towns of West Lothian, Stirling, Falkirk and Perth and Kinross as well as the Northern Isles was well documented. Their growth was the catalyst for the city region debate and the need to assess and develop policy at the metro-region level. These economies have continued to grow above the national average but have been overtaken in recent times by strong growth across Orkney, Aberdeenshire, Highland, South Lanarkshire and Clackmannanshire. Orkney Islands recorded a 33% increase in employment over the period 22-7.

8 7 6 5 4 3 2 1 Economic Dynamism continued Top Five Improvers: Economic Dynamism 1997-27 E. Ayrshire E. Dunbartonshire Inverclyde Dundee City Clackmannanshire Score improvement on Economic Dynamism (%) Improvement of Economic Dynamism score (97-7) Source: Scottish I ndex of Economic Resilience, 29, GEN East Ayrshire recorded a significant change in employment levels, from a fall of 18% between 1992-97 to a growth of 1% between 22-7. The area also saw average income grow by 3% between 22-7 compared to a 7% decline 1992-97. Dundee and East Dunbartonshire also recorded significant improvements in the level of employment growth, at 17% and 16% respectively. Inverclyde witnessed a 38% improvement in average income levels. The single largest increase in income levels was witnessed in East Renfrewshire, where income levels improved by 46% between the period 1992/97 and 22/7.

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