1. Economics
November 13, 2015

Here's why a manufacturing revival won't save the north of England

By Jonn Elledge

The debate about rebalancing the British economy and closing the north-south divide has been going on for almost literally as long as anyone can remember, and throughout all that time one possible solution has proved strangely persistent. 

“The problem,” someone will inevitably tell you, in any such discussions, “is the collapse of British manufacturing. If you want to fix the northern economy, Britain needs to start making things again.”

It’s a seductively nostalgic idea, with just one minor problem: it’s totally wrong.

Check out this graph plotting average weekly wages in Britain’s cities against the share of the local workforce employed in manufacturing. 

Now correlation is not causation, but that, nonetheless, is a fairly stong correlation. The booming engineering centre of Derby, in the top right, is a partial exception. But for the most part, the more dependent on manufacturing a British city is, the less its residents earn.

Now compare and contrast with this graph. This time, instead of manufacturing, it’s the share of the local workforce employed in “Knowledge Intensive Business Services” – a technical term which includes research, tech firms, professional services and various other high level occupations.

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This time the correlation is just as clear, but runs the other way. The more of these jobs a city has, by and large, the stronger its economy will be.

In other words, the idea that a resurgence of manufacturing will fix the north is exactly wrong. To boost wages, cities need to be looking in the exact opposite direction.

This, if you give it any thought, isn’t very surprising, really. British factory workers will often find themselves competing with their peers in the developing world, which pushes wages down. British accountants generally won’t. 

Nonetheless, what it means is that politicians who want to boost the north shouldn’t be trying to turn back the clock: instead, whisper it soft, its economy needs to look more like the south.

There are other categories of employment, where the message isn’t quite as clear, but we might as well complete the set. (The rest of our graphs unlike are non-interactive flat images, for the boring reason that it improves page load times.)

This one’s “Other private services”, which includes a lot of relatively low-paying stuff like retail and call centre work. That stuff is pretty evenly distributed, so there’s no particular pattern we can see beyond “people in rich cities earn more”.

A high percentage of public sector employees seems to generally mean lower wages, except when it doesn’t. Having a top university seems to help on that front.

And this is everything else. Again it looks like there’s a correlation, but it’s a pretty weak one.

The one exception is Aberdeen, which has a relatively large number of “other” employees, yet high wages. Our guess? Bits of the energy industry don’t count as KIBS.

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