Research shows that in recent years university graduates have spread out across the country, with many heading north to take advantage of the greater number of public sector jobs (and many northern graduates taking advantage of the greater number of public sector jobs). Jonathan Wright of the The Work Foundation writes that the geographic effects of the coalition’s impending cuts to the public sector cannot be ignored. If the government does not act to promote more local growth, public sector cuts will hit young graduates hard, and this may lead to a talent flight from the North to the South of the UK.

Wright, Jonathan

English

Research Papers in Economics

http://blogs.lse.ac.uk/politicsandpolicy/2011/03/03/public-sector-cuts-uk-geographical-and-generational-divides/?pfstyle=wp March 4, 2011
Public sector cuts have the potential to exacerbate growing
geographical and generational divides in the UK
Research shows that in recent years university graduates have spread out
across the country, with many heading north to take advantage of the greater
number of public sector jobs (and many northern graduates taking advantage of
the greater number of public sector jobs). Jonathan Wright of the The Work
Foundation writes that the geographic effects of the coalition’s impending cuts to
the public sector cannot be ignored. If the government does not act to promote
more local growth, public sector cuts will hit young graduates hard, and this may
lead to a talent flight from the North to the South of the UK.
There is an emerging consensus that places outside the South East will be hardest hit by public
sector cuts. The Work Foundation’s latest report Cutting the Apron Strings? The clustering of
young graduates and the role of the public sector shows that young graduates – a vital group for
local economic success – are disproportionately employed in the public sector in many northern
cities. Public sector cuts could not only lead to an increase in youth unemployment, but to a ‘brain
drain’ of talented young people from public sector dependent towns and cities predominantly in the
North to the South East in search of work.
The coalition is committed to ‘rebalancing the economy’ and creating enterprise in places that have
relied upon the public sector in recent years. Doing so would allow these cities to attract and retain
more talented individuals. This is urgent and necessary, but the government’s choice of policy
approach has received recent criticism – one example being the apparent support for Enterprise
Zones.  It is imperative that the Coalition responds to these challenges appropriately and efficiently
in order to deliver ‘balanced’ and sustainable growth across the UK.
Young graduate location in the UK and the ‘spreading out’ effect
The UK’s young graduates are overwhelmingly located in London and the South East, with
approximately 35 per cent living there. They are highly mobile, and traditionally migrate to the capital
in search of work after they graduate. London also has the highest graduate retention rate in the
country – it not only contains the most universities and the most students, but, most importantly, the
most knowledge intensive private sector employment opportunities.
However, in recent years the location decisions of young graduates have begun to change and
there has been a ‘spreading out’ effect. Regions such as Yorkshire and Humberside and the North
East have increased their national share, whilst regions in the South have experienced a decrease
(see figure 1). Cities such as Sheffield and Leeds have seen the biggest relative gains.
Figure 1: Percentage point change in young graduate distribution 2001-09Source: Annual Population Survey (2009); Local Area Labour Force Survey (2001)
Unlike the United States where graduate retention is strongly associated with the presence of high
calibre universities, it is the level of employer demand that has the strongest effect in the UK. The
public sector has allowed certain cities to retain graduates in recent years even though private
sector demand for high level skills has been weak.
The public sector is now the most common employment destination for young graduates in the UK,
and they are disproportionately employed in the public sector outside of the South East. Around 50
per cent of young graduates work in former industrial areas like South Yorkshire, compared to 15
per cent in Central London (see figure 2). However, graduate destination data has shown that
approximately 50 per cent of the public sector jobs that new graduates enter straight after
graduating can be considered ‘non-ring-fenced’ – the jobs most likely to be affected by cuts.
Figure 2: Public sector employment as a proportion of young graduates, 2010
Source: Quarterly Labour Force Survey, January-March 2010
The short and long term implications of public sector cuts
The Office for Budget Responsibility has forecast that 330,000 public sector jobs will be lost over
the next four years as a result of the ﾣ81 billion of public sector cuts. This will have two sets of
implications for young graduates:
In the short term there is likely to be an increase in youth unemployment – especially younggraduate unemployment. The unemployment rate for new graduates has doubled since the
onset of recession to over 20 per cent and a young person is now two and a half times more
likely to be unemployed. These are unprecedented levels. The Coalition’s decision to abolish
the Future Jobs Fund – a six month paid work placement for under 25s – at this time has
received heavy criticism.
The longer term implications could be more problematic. If the public sector has sustained
jobs for talented people in certain regions, there could be a ‘flight’ of highly skilled, highly
mobile, young people to London and the South East in search of knowledge intensive private
sector employment opportunities. These places would prosper from the in-migration of young
graduates at the expense of the public sector dependent cities.
The ‘clustering’ of talented people has many local economic benefits. Places that have more
talented people experience more innovation and higher economic growth.  Even the lower skilled
benefit from the presence of highly skilled individuals as they create more jobs for the local
economy. Graduate retention is therefore very important. If those places that have experienced a
growing share of young graduates in recent years lose them to other cities and regions, regional
disparities will continue to grow in the UK.
Re-thinking policy
The government believes that this agenda is best taken forward ‘locally’. The new Local Enterprise
Partnerships are expected to bridge the gap between local authorities and business and bid for the
ﾣ1.4 billion Regional Growth Fund.  However, these new arrangements have limited power and the
Regional Growth Fund budget is far less than that of the Regional Development Agencies.
Osborne’s other flagship regional enterprise policy – the National Insurance Contributions holiday
for new start ups outside of the South East – has also had limited success. The Federation for
Small Business has argued that this policy must be extended to existing businesses if it is to have a
significant impact.
The government is also likely to reintroduce Enterprise Zones. However, a new report by The Work
Foundation has warned against this – they were not only costly, but also tended to displace jobs
from the local area. Each new job created cost around ﾣ50,000 in today’s money. This contrasts
with ﾣ6,500 for every new job created by the Future Jobs Fund which was abolished.
Given that public finances are severely constrained it is essential that the right policies are
implemented to stimulate enterprise and promote local growth. It may be more useful to put more
money into the Regional Growth Fund so that local areas can come up with local solutions to their
specific challenges. And local institutions need real power over planning and infrastructure to fully
address these challenges.
Lastly, education institutions such as universities and colleges have a key role to play. They not only
have the task of providing graduates with the skills necessary to participate in a more innovative
and entrepreneurial economy, but should build on their links with local businesses, and find ways of
becoming more accessible – providing employment pathways for students. The incubation and
commercialisation of innovative ideas in universities must also be supported.
Failure to make appropriate interventions has the potential to exacerbate record levels of youth
unemployment and growing regional divides in the UK.
Jonathan Wright regularly writes for The Work Foundation’s blog.
The Work Foundation is an independent authority on work and its future. It aims to improve the
quality of working life and the effectiveness of organisations by equipping leaders, policymakers
and opinion-formers with evidence, advice, new thinking and networks. For further reading, please
see The Work Foundation’s reports on graduate skills and the geography of the recovery.

Public sector cuts have the potential to exacerbate growing geographical and generational divides in the UK.

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