A new report by WMREDI, University of Birmingham looks at the factors that are significant in closing the gap in productivity in the West Midlands.
This report focuses on labour productivity – which measures how much output is produced per unit of labour input.
Growth in productivity means an economy can produce more without needing to use more inputs. As such, it is one of the most fundamental drivers of improvements in living standards, allowing people to enjoy more, or better quality, goods, and services.
The ONS estimates the average market sector wage in the UK would be just over £5,000 higher in 2018 for the average worker if productivity growth had continued.
Productivity gaps across countries and within regions is not uncommon, but the variation within the UK is high compared to international standards. In the West Midlands, labour productivity was 11% below the UK in 2019, and 33% lower than the most productive region (London).
Only 3 subregions in the wider West Midlands had labour productivity levels above the UK average in 2019 (even when London is excluded from the average); Solihull was the highest (£45.20 per hour), followed by Warwickshire (£37.40 per hour) and Coventry (£36.20 per hour) Solihull had the largest growth (+£15.40 between 2004-2019) and the eighth largest growth in the UK. Meanwhile, Wolverhampton had the lowest growth in the region (+£3.80) and the second lowest growth across UK subregions.
In the West Midlands, there is a positive industrial mix effect. The industrial mix effect is the number of jobs we would expect to see added (or lost) within an industry in your region, based on the industry’s national growth/decline. However, firms in the region, whilst in very productive sectors, individually are not very productive, and the positive industrial mix effect for the region does not compensate for this.
Associate Professor Rebecca Riley, WMREDI, University of Birmingham explains:
“This report shows us that the West Midlands has an industry mix which is positive in terms of productivity, we have lots of firms in highly productive sectors, but the issue for regional policy is that individual firms aren’t as productive as they could be and tackling this would improve our overall economic performance. Under the current post pandemic and energy crisis conditions the advantage we have from having strength in high value sectors might be lost, so a focus on supporting these firms is vital to long term recovery.”
Professor Enterprise, Engagement, and Impact
Rebecca Riley is a Professor of Enterprise of Engagement, and Impact in City-REDI, within Birmingham Business School, University of Birmingham, UK.
