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» London’s working-age population possesses more higher-level qualifications on average than the overall UK population. In London, 37 per cent of the working-age population had Level 4 or above qualifications in 2007 compared with just 29 per cent of the total UK population.
» The share of London’s working-age population who had no qualifications was 13 per cent, the same as that in the UK.
» Approximately half of London residents aged 25-34 possessed Level 4 qualifications or above, significantly higher than the level for older age groups. The age distribution of London residents in employment is skewed towards this 25-34 year old age group relative to the rest of the UK.
» Over half (56 per cent) of jobs in central London were filled by people with Level 4 or above qualifications. The average for London overall was 46 per cent whilst in the UK 33 per cent of jobs were filled by people with Level 4 or above qualifications.
» The Financial and Business Services sectors and the Public Administration, Education and Health sectors have the highest shares of their jobs filled by people with Level 4 or above qualifications, whilst the Construction and the Distribution, Hotels and Restaurants sectors had a high share of jobs filled by workers with lower levels of qualifications.
» Possessing at least some form of qualification significantly increases the chances of employment in London with 66 per cent being in employment with ‘Below NVQ level 2’ qualifications compared to 45 per cent with no qualifications.
» Similarly, there is a large benefit to be gained from having NVQ level 4 and above qualifications in London with employment rates of 87 per cent in comparison to 77 per cent for those with only NVQ level 3 qualifications.
» GCSE results have been improving rapidly amongst London children over recent years with the percentage obtaining five A*-C grades rising from 45 per cent in 2000 to 64 per cent in 2008. However, only 51 per cent obtained five A*-C grades including English and Mathematics in 2008.
This chapter considers data on the levels of qualifications of London residents and the London workforce. Qualification levels are considered an important predictor of success in the labour market and the data in this chapter assesses the links between employment status and individuals qualifications. The chapter also considers how different occupations and industries have differing needs in terms of qualifications amongst their workers. The chapter concludes with a short look at the qualification levels being obtained by young Londoners as they prepare to move from education into the labour force.
The charts and tables in this chapter are based on a definition of skill levels used in the Labour Force Survey. In brief, these definitions correspond to widely known qualification levels as follows:
‘NVQ Level 4 and above’ corresponds to degree level qualifications,
‘NVQ Level 3’ corresponds to A’ Level standard qualifications,
‘NVQ Level 2’ corresponds to GCSE qualifications, and
‘Other Qualifications’ usually means an individual has obtained qualifications abroad that are not categorised in the UK definitions.
A full definition of each of the terms is provided in the Notes and Definitions section at the back of this publication.
Qualification levels of London residents
London’s working-age population possesses higher qualifications on average than does the UK population. This is particularly true in terms of the share of the workforce possessing degree level qualifications. Thus, in London, in 2007, 37 per cent of the working-age population had Level 4 or above qualifications compared with just 29 per cent of the total UK population (Figure 4.1).
At the opposite end of the qualifications scale, the share of London’s working-age population who had no qualifications was 13 per cent, the same as that in the UK.
London also had a large share of its population possessing ‘other qualifications’, which are qualifications that are not recognised in the UK classification, usually because they have been earned abroad. This is to be expected given the larger proportion of non-UK born residents living in London compared with other regions of the UK.
In general, young people today are obtaining higher qualification levels than previous generations. As a result, when the age profile of qualifications is examined it is typical to see lower levels of qualifications amongst older age groups and this is true of the London population (Figure 4.2).
Amongst people aged 25-34, approximately 50 per cent of London residents had Level 4 or above qualifications, significantly higher than the level for older age groups. The high level of qualifications amongst 25-34 year old residents in London also partly reflects the large influx of high-skilled individuals who move into London during their 20’s from other UK regions, attracted by the number of high-skilled jobs available in the London labour market.
One key characteristic of the London population is its dynamism. There is constant movement of people both into and out of London both from other regions of the UK and from abroad. Approximately two million working-age residents in London were born outside of the UK. This total includes significant numbers of people (650 thousand) with Level 4 qualifications or higher, and also of people with no qualifications (300 thousand) (Figure 4.3). However, as would be expected ‘other qualifications’ forms a particularly large share of the qualifications obtained by London residents born abroad.
International migration into London has led to a high level of ethnic diversity amongst the London population. In terms of qualification levels, White British residents tend on average to have slightly higher qualification levels than other ethnic groups. However, there is a fair degree of similarity amongst the data with most ethnic groups typically having between 30 to 40 per cent of residents with Level 4 or above qualifications and ten to 15 per cent of residents with no qualifications. Exceptions are the Chinese ethnic group, which has a higher share of high-level qualifications than other groups, and the Bangladeshi community which has a significantly lower level of qualifications than other London ethnic groups (Table 4.4).
Qualifications of London workforce
Not all working-age residents are in employment. As a result, the qualification distribution of the workforce tends to be higher than that of the population because higher skilled people are more likely to be in work, and lower skilled people are more likely to be workless.
So, whilst Figure 4.1 showed that 37 per cent of London’s working-age population had Level 4 and above qualifications in 2007, the share of jobs in London filled by people with these qualifications totalled 46 per cent (Figure 4.5) This was substantially higher than in the UK overall where just 33 per cent of jobs were filled by people with Level 4 and above qualifications. This illustrates the strong demand that exists from business for high-skilled workers within London relative to the rest of the UK.
This demand for high-skilled workers is particularly strong amongst firms based in central London (see Notes and Definitions), 56 per cent of people who work in this region possessed Level 4 or above qualifications (Figure 4.6). By contrast, the skills distribution of people who work in Outer London is more similar to that in the rest of the UK with a smaller share of people qualified to Level 4 or above, and a greater share of workers qualified to Levels 1, 2 and 3.
In order for the demand for high-skilled workers to be met, London attracts a high degree of in-migration from both domestic and international sources. Much of this in-migration tends to be of people in the early stages of their careers, typically aged in their 20s. This leads to the age distribution of London residents in employment being skewed towards the 25-34 age group relative to the rest of the UK (Figure 4.7)
Furthermore, the skill levels of those workers aged 25-34 resident in London is particularly high. In 2007, over 54 per cent of this age group possessed Level 4 or above qualifications, compared to just 40 per cent for the same age group working in the rest of the UK (Figure 4.8).
Another important factor that impacts upon the London workforce is commuting flows. Nearly a fifth (19 per cent) of London’s jobs are filled by people who live outside of Greater London. In terms of qualifications, these commuters have a broadly similar skills profile to that of working London residents with 45 to 46 per cent having Level 4 or above qualifications in each case. There are, however, fewer commuters with ’no qualifications’ or ‘other qualifications’ when compared to London residents in employment in London. (Figure 4.9)
Qualifications by occupation and sector
The relatively high share of jobs requiring high skill levels in London reflects the occupations and industrial sectors that are based in London.
In terms of occupations, London has a high number of jobs that are either Managers and Senior Officials, Professional Occupations or Associate Professional and Technical. These occupations account for 57 per cent of jobs in London compared to 43 per cent of jobs in the UK. Level 4 or above qualifications are required for the majority of employment opportunities in these occupations (Figure 4.10). Furthermore, it is these occupations that have been responsible for most of London’s employment growth over the past decade.
In terms of industrial sectors, the Financial and Business Services sectors and the Public Administration, Education and Health sectors have the highest shares of their jobs filled by people with Level 4 or above qualifications, whilst the Construction and the Distribution, Hotels and Restaurants sectors have a high share of jobs filled by workers with lower levels of qualifications (Figure 4.11).
Employment rates and worklessness by qualification
The qualifications an individual holds can be very important in terms of their success in the labour market. In particular, an individual in London possessing no qualifications is more likely to be workless in London than to be in employment (Figure 4.12).
Possessing at least some form of qualification significantly increases the chances of employment with 66 per cent being in employment with ‘Below NVQ level 2’ qualifications compared to 45 per cent with no qualifications.
Similarly, there is a large benefit to be gained from having NVQ level 4 and above qualifications with employment rates of 87 per cent in comparison to 77 per cent for those with only NVQ level 3 qualifications.
Qualifications attained by young people in London.
This chapter has illustrated how important it is to obtain qualifications in order to be successful in the London labour market and in particular the benefits to be gained in London from possessing Level 4 or above qualifications. This last section briefly looks at the qualifications London’s young people are currently obtaining from their education.
GCSE results have been improving rapidly amongst London children over recent years with the percentage obtaining five A*-C grades rising from 45 per cent in 2000 to 64 per cent in 2008 (Figure 4.13).
However, ability in English and Mathematics are crucial to many employment opportunities and so it is often considered preferable to consider the data on the numbers of pupils obtaining five GCSE’s A*-C including English and Mathematics. This level was obtained by 51 per cent of London pupils in 2008 (Table 4.14). It is noticeable that there is a large gender gap in achievement with only 46 per cent of boys obtaining this level compared to 55 per cent of girls.
After obtaining GCSE’s or other Level 2 qualifications, the next qualification target are Level 3 qualifications. The share of London’s 19 year olds who have obtained Level 3 qualifications was 51.9 per cent in 2008 which shows a considerable improvement on the 2005 level of 45.8 per cent (Table 4.15).
Nevertheless, recent years have seen an increase in accepted applications to higher education from London resident applicants. Numbers have steadily increased since 2003 to a total of 64 thousand in 2008, though some of this will be down to the increase in London and UK accepted admissions of nurses that used the UCAS system for the first time in 2008. The share of UK acceptances from people resident in London has increased slightly over the same period from 15.0 per cent to 15.8 per cent (Figure 4.16).
» In 2007 London’s GVA on a workplace basis was £251 billion and represented 21 per cent, the largest share, of the UK total.
» In 2007 London’s GVA per head was 66 per cent above the UK average.
» Over the ten year period to 2007, the average annual increase in London’s Gross Value Added (GVA) was 6.3 per cent compared with 5.3 per cent for the UK and the greatest regional increase over this period. Inner London contributed 67 per cent to London’s GVA in 2006 and 14 per cent to the UK’s total GVA.
» Financial Intermediation generated 24 per cent of Inner London’s GVA, a marked contrast to Outer London where Financial Intermediation generated four per cent of GVA and the UK where the sector’s share was eight per cent.
» Gross Disposable Household Income (GDHI) per head London in 2007 was 25 per cent higher than the UK average. The only two other regions above average on this measure were the South East (12 per cent), and East regions (five per cent).
» Over the ten-year period to 2007 London has also shown the highest average annual percentage increase in GDHI per head, 4.1 per cent compared with the UK GDHI per head increase of 3.8 per cent.
» Using the productivity indicator of regional GVA per hour worked indexed to UK=100. In 2007, London had an index level of 130, the South East 105 and the East of England 101 - the top three regions.
» Most industry groupings are around a quarter to a third more productive in London when compared to the UK average for that industry. In 2006 Business Services was 14 per cent above the UK average and has seen the largest index increase since 1996 (14 index points).
» Although London as a whole is doing well, the Economic Deprivation Index looks at the impact of deprivation on small areas and shows that London was the third most deprived region behind the North West and North East over most of the 1999 to 2005 period until 2005 where it overtook the North West to become the second most deprived region. However, for the Income deprivation domain London was the most deprived region over the entire period 1999 to 2005.
» Economic Deprivation for London showed some improvement up to 2001 and slight deterioration afterwards; this trend is mirrored by the performance of both Income and Employment deprivation domains, with the Income deprivation domain for London showing a slightly greater deterioration than the Employment domain since 2001.
This chapter focuses on London’s key macro-economic measures; regional Gross Value Added (GVA) and regional Productivity, both measures of London’s economic performance and regional Gross Disposable Household Income (GDHI), a measure of the money households have available to spend or save. Some balance is also provided by the Economic Deprivation Index which provides a neighbourhood perspective of economic prosperity and highlights inequality.
The macro-economic measures used in this chapter provide a high-level view of London’s performance; the lowest geographic level at which GVA is calculated is for NUTS 3 areas which in London equates to five groups of boroughs; these high level measures can mask large inequalities which exist beneath them and should be considered together with, for example, the Indices of Deprivation, which examine inequality at the very lowest geographic levels.
The main measures of regional and sub-regional performance presented here depend on National Accounts data provided in the Blue Book each year. It takes some time to regionalise these data, for example, London GVA for 2007 was published in December 2008. Therefore the effects of the current downturn which can be seen feeding into early measures of GDP at the UK level are not yet accounted for in regional data.
For comparisons of regional performance, London is clearly more than just a region it is also a capital city. As a city with a population of 7.56 million London is strikingly larger than the UK’s other main cities.
London houses a major world financial centre and a range of business specialisms as well as the draw of tourism and culture; costs to businesses are much higher in London but the effects of agglomeration, which include drawing in a highly skilled workforce, compensate by driving higher productivity and greater output. A decomposition of GVA per head, using an OECD methodology teases out some of the factors which contribute to London’s performance.
Conceptually GVA should be measured on a workplace basis, allocating income to the region where people work and these are the estimates presented here; residence-based measures are also published by ONS. GVA estimates are provided in current basic prices and include the effects of price inflation; deflated or real regional GVA is not yet available, although in development by ONS. Price inflation may affect regions quite differently so growth rates of current price GVA should be approached with caution as they may overstate or understate London’s performance compared with other regions.
It should also be noted that London, has a very high GVA per resident. This is due to several factors such as productivity, commuting and hours worked. The large number of commuters from outside the region contribute to London’s GVA, which is then divided by a much lower resident population.
In 2007 London’s GVA on a workplace basis was over £250 billion and represented 21 per cent, the largest share of the UK total (excluding extra-regio), the second largest share was provided by the South East at 15 per cent (Figure 5.1). London’s share has increased the most over the ten-year period since 1997, an increase of 1.8 percentage points followed by the South East at 0.5 percentage points (Table 5.20).
London has the highest Regional GVA per head on a workplace basis, £33,200 in 2007, 66 per cent higher than the UK average (Table 5.2). To note, GVA per head uses a resident population denominator with a workplace numerator, so is increased by commuting and other factors examined later in a decomposition of GVA per head.
Not accounting for inflation, between 2006 and 2007 workplace based GVA in London increased by 6.7 per cent, the strongest regional increase compared with the annual percentage increase for the UK of 6.0 per cent (excluding extra-regio) (Table 5.3). Over the ten-year period to 2007 the average annual increase in London’s GVA was 6.3 per cent compared with 5.3 per cent for the UK, and was the greatest regional increase over this period.
Between 2006 and 2007 workplace based GVA per head in London increased by 6.1 per cent, the largest regional increase compared with the annual percentage increase for the UK of 5.3 per cent (excluding extra-regio). Over the ten-year period to 2007 the average annual increase in London’s GVA per head was 5.5 per cent compared with 4.8 per cent for the UK, and again the greatest regional increase.
Inner London contributed 67 per cent to London’s GVA in 2006 and provided the largest share of NUTS2 regions, 13.7 per cent, to the UK’s total (excluding extra-regio).
Inner London had the largest GVA per head on a workplace basis (£52,857) for 2006, the latest year for which estimates are available. These figures compare with the UK average (excluding Extra-Regio) of £18,945.
The 2006 estimates for NUTS 3 areas of the UK (which in London equates to five groups of boroughs) show Inner London - West had the largest GVA per head (£93,144), almost four times the UK average. GVA for Inner London West represented an 8.9 per cent share of the UK total.
Regional GVA by Industry
The sector Real estate, renting and business activities contributed the most to London’s GVA in 2006 (30 per cent) followed by Financial Intermediation which contributed 17 per cent, primarily driven by Financial Intermediation activities in Inner London where the sector generated 23 per cent of GVA, a marked contrast to Outer London GVA where Financial Intermediation generated four per cent of GVA and the UK as a whole where the sector’s share of UK GVA was eight per cent. Manufacturing generated a much lower proportion of London’s GVA, six per cent, compared with 13 per cent for the UK (Table 5.5).
At NUTS 2 level ie inner and Outer London, GVA can be broken down into broad industrial groupings. This clearly shows the predominance of Business Services and Financial Intermediation and the high degree of specialisation in Financial Services in Inner London. For industries such as retail which are more closely tied geographically to the resident population, we see a more even balance between inner and Outer London (Figure 5.4).
Transport, storage and communication contribute more significantly to Outer London’s GVA (13 per cent) when compared with the London share of eight per cent or the UK share seven per cent, however Outer London’s sector profile of GVA is much more similar to the UK’s profile than to Inner London.
At NUTS 3 level GVA is broken down into six industrial groupings. Looking at the Business Services and Finance group, which accounts for over half of Inner London’s GVA, strong increase is shown for the Inner London areas Inner London - West, and Inner London - East (which includes Canary Wharf) (Figure 5.6).
GVA per head decomposition
Regional economic performance is traditionally measured as Gross Value Added (GVA) per head. This measure can be broken down further by an OECD methodology into four components:
• average labour productivity
• employment ratio
• activity ratio
• commuting ratio
In this analysis, average labour productivity (in this case GVA per job) is further separated into two elements:
• GVA per hour worked
• hours worked per job
Each of these five components is influenced by regional factors that affect their contribution to the regional divergences from the UK average. These regional characteristics may be natural advantages (such as geographical) or resources which could potentially be developed (such as skills of the labour force or improvements to transport infrastructure).
Looking at these components helps to explain the reasons for differences in regional economic performance and highlights some region-specific issues.
Each component is calculated independently based on the most appropriate source of published data available. This analysis does not utilise the underlying data sources used in the GVA per head calculation but shows what factors in the economy can explain the differences in GVA per head from the UK average when using other data sources. For example, the commuting rate is based on the numbers of people commuting between regions, based on employment rather than income data.
In 2007 London’s GVA per head was 66 per cent above the UK average, Figure 5.7 shows to what extent the above factors contribute to boosting London above the UK average. For all regions shown in the chart, factors on the left hand side of the vertical axis contribute to pushing GVA per head beneath the UK average and factors on the right hand side contribute to pulling GVA per head above the UK average.
In London for 2007, the greatest positive factor was productivity (34 per cent), followed by commuting (22 per cent) and hours per job (eight per cent); the only negative factor for London was employment (- one per cent) and low employment rates are a known issue for London. The large contribution of commuting for London highlights the disadvantage of using this GVA per resident figure – a workplace-based measure of output per head divided by a resident population.
Gross disposable household income (GDHI) per head is a useful indicator of prosperity of the people living in the regions and countries of the United Kingdom.
GDHI approximates to the concept of income as generally understood in economics, where income is often defined as the maximum money that a household has available at its disposal to spend without increasing borrowing.
For London, as in all regions, the greatest positive contribution to GDHI is made by Compensation of Employees (wages) and the greatest reduction by Taxes and Social Contributions (Tax and National Insurance) (Figure 5.8).
GDHI for London was around £136 billion in 2007, an increase of three per cent from 2006. GDHI per head in London was £17,931 in 2007, an increase of two per cent from 2006 and the highest of all regions. Presenting GDHI per head allows comparisons of regional income levels, as it takes into account the total populations, both within and between regions, but not the age structure of the population.
GDHI per head relative to the UK (where UK=100) for London in 2007 was 125, the highest of all regions with the South East at 112, and East of England at 105 the only two other regions with an index above 100 (Figure 5.9 and Table 5.21).
Between 2006 and 2007 all regions showed an increase in GDHI per head. London had the highest annual percentage increase at 2.4 per cent, followed by the North West 2.0 per cent, Northern Ireland 1.9 per cent and West Midlands 1.9 per cent. These compare with the UK GDHI per head increase of 1.9 per cent.
Over the ten-year period to 2007 London has also shown the highest average annual percentage increase in GDHI per head, 4.1 per cent, although Northern Ireland (4.1 per cent) had a similar increase, and Wales, Scotland and the East Midlands all increased at an average rate of 3.9 per cent per year. These compare with the UK GDHI per head increase of 3.8 per cent (Figure 5.10).
GDHI per head in Inner London was £20,163 in 2007 (an increase of 2.8 per cent on 2006); Outer London GDHI per head was £16,461 in 2007 (an annual increase of 2.0 per cent).
In index terms the London NUTS 3 Sub-region with the highest GDHI per head was Inner London - West at 94 per cent above the UK average, an increase from 92 in 2006, substantially above Outer London – West and North West at 24 per cent above the UK. The London sub-region with the lowest GDHI per head is Outer London – East and North East at just two per cent above the UK average.
At NUTS 3 level, the greatest annual London increase in GDHI per head was in Inner London - West which increased to 27,838 (3.1 per cent) in 2007 and lowest in Outer London - South which increased to 17,093 (1.4 per cent) in 2007 (Table 5.22).
Components of GDHI
Of London’s GDHI per head, £17,931 in 2007, further analysis shows that Compensation of Employees (wages) made the largest positive contribution of £17,411 and Net current transfers (Social benefits eg Job Seekers Allowance less Taxes and National Insurance) the greatest negative contribution of -£5,524. Net current transfers is usually a negative item as aggregate taxes and National Insurance are greater than benefits received by persons. Comparisons of these components across regions, in Table 5.11, show that while London has a higher income level it also pays more in terms of Social Contributions and Taxes.
Both inner and Outer London have a higher GDHI per head than any other NUTS 2 region. Inner London leads the UK in all components of GDHI per head, and pays more in terms of Social Contributions and Taxes than anywhere else (the outflow of net transfers is almost three and a half times the UK average), although Outer London still has amongst the highest GDHI per head in the country.
To compare regions in terms of productivity, GVA per hour worked is the preferred indicator. At lower levels of geography, GVA per hour worked estimates are not yet available and GVA per filled job should be used. These two measures of productivity divide GVA by the labour input, namely hours worked in each job or the number of jobs used to create it.
GVA per hour worked and GVA per filled job take account of commuting effects and different age profiles, and the former also accounts for variations in labour market structures, such as full- and part-time working arrangements and job share availability. Therefore, these productivity measures exhibit smaller differences from the UK average than the catch-all indicator of GVA per head; in particular London shows a very high GVA per head, due to a combination of high productivity and commuting.
Using the preferred productivity indicator of regional GVA per hour worked indexed to UK=100. In 2007, London had an index level of 130, the South East 105 and the East of England 101 were the only three regions with a productivity performance above the UK average (Figure 5.12). Given that businesses are attracted to London despite higher costs it is not surprising that overall productivity is significantly higher than for other regions, in part compensating for additional costs.
London has improved relative to other regions between 2001 and 2006, with a small drop in relative performance in 2007. Between 2001 and 2007, London saw the strongest improvement in relative performance, diverging further from the UK average (Table 5.23). However, over the preceding period 1997 to 2001 London saw a drop in relative performance, so over the ten year period to 2007, London’s increase in productivity was fourth, behind the South East, East of England and the South West.
Figure 5.13 shows that in 2007, GVA per filled job and GVA per hour worked showed smaller differences from the UK average than the indicator GVA per head. This is partly due to commuting patterns where productivity of the workforce is divided by a much lower resident population. Whereas Productivity indicators, divide regional GVA by the jobs or hours worked to create it, allocated to the place of work.
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