Creative clusters and creative multipliers

Change in creative vs. non-tradable jobs, UK urban travel to work areas, 1998–2018

Creative and cultural industries are very urbanised. What are the impacts of these creative clusters on their surrounding cities?

In a new open access paper with Diana, Tasos and Massi, we test the causal effects of creative clusters on urban economies in the UK over 20 years.

Overall, we have good news and bad news. The good news: between 1998 and 2018, each creative job generated at least 1.9 non-creative jobs in UK cities; in the average city, creative sectors are responsible for over 16% of all growth in urban local services. This is decent. The less good news: we find only weak evidence of spillovers on other high-skilled activities. And precisely because creative industries are highly clustered, most places don’t feel the benefit of multiplier effects.

Understanding the impacts of creative clusters is important, for two reasons. First, there’s a knowledge gap: academics spend a lot of time thinking about *why* creative activity clusters in cities, but much less about *effects* of those clusters on cities. We need to understand the latter, better.

Second, and more importantly, there are policy gaps. City leaders often assume creative activity can help drive urban economic development — helped by programmes like City of Culture status, or broader ‘creative city’ initiatives. By helping lagging places close gaps with other places, creative spillovers could even assist levelling up.

But there are two problems here. For a start, it’s not clear these effects are real, and which sectors they benefit (the knowledge gap again). Take another look at the picture above: there’s a clear positive link between growth in creative jobs and growth in local [‘non-tradable’] services. But we can’t be sure that the creative industries drive this relationship: wealthier cities could have simply developed more creative activity and more local services.

Also, creative clustering is a) extensive and b) very persistent over time. So even if creative spillover effects *are* real, economically they may be benefitting a few big cities more than others. This raises bigger policy questions about the feasibility of *shifting* the geography of creative activity –I’ll come back to this at the end.

There are three possible ways of thinking about creative activity and cities. First, creative clusters may just be *where* today’s post-industrial economies happen: we know creative firms benefit from urban location. Second, creative firms may also locate in big cities because they sell mainly to urban consumers and into other urbanised industries (like business services). In this view, cities drive creative industry growth, not the other way around. Third, clusters might also generate halo effects on the wider city. High-paid creative workers might support local service jobs; tourism and the visitor economy may do the same; and knowledge spillovers from creative firms might help other skilled activities grow.

To explore these issues, we built a new 20-year panel of UK cities, using rich microdata at the Travel to Work Area level. Then, adapting Moretti’s local multipliers framework, we used historical instruments to identify the causal effects of creative activity on non-creative firms and employment.

We have four main results.

First, we confirm that UK creative activity is very clustered within a few cities — notably London and surrounds, Manchester, Birmingham and Bristol. While we see some diffusion within those clusters — Edinburgh has grown, Crawley and Tunbridge Wells have shrunk — the overall picture has barely changed over two decades.

Second, we find robust, positive employment impacts of creative industries on urban local services. Each creative job generates at least 1.96 non-tradable jobs over our 20-year period,. But for workplaces, we find no similar effects, and — in line with other studies — job multipliers decline substantially after the 2007 financial crisis.

Third, impacts on local services reflect both creative workers’ spending and visitors to urban amenities such as galleries and museums, although the former is stronger than the latter.

Fourth, we find only weak, suggestive evidence of spillovers from creative industries to activity in other tradable sectors.

What does this mean for policy? Overall, job multipliers are large, but the creative sector’s small size and extreme clustering mean that overall effects are uneven. In the average city, creative jobs generate 16.4% of non-tradable job growth 1998–2018 — but in the biggest clusters the gains will be much larger, and in most places much smaller than this.

In turn, policies to boost local creative industries everywhere won’t help close spatial disparities — if anything, it may reinforce them. Of course there are good arguments for creative city policies — art for arts’ sake — but outside existing creative cores, the economic arguments are a lot weaker. The impacts will likely be greatest in existing clusters, and on existing local services firms rather than new entrants or (and we’re less confident here) more knowledge-intensive activity.

All of which raises a bigger issue: if we are serious about levelling up, and think creative industries can help, what if anything can we do to *shift* the geography of creative activity? Can we build new creative clusters, or relocate (parts of) existing ones?

Happily we have at least two natural experiments to work with: the BBC’s move to Salford Quays in 2011, and Channel 4’s HQ2 in Leeds. Robust evidence on the economic effects of the BBC’s move is … mixed: Tom Forth is very positive, the Centre for Cities much less so. My own ongoing work with Henry Overman, Capucine Riom and Maria Sanchez-Vidal sits somewhere between the two — we’re hoping to have this finally published later this year. Watch this space!

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Max Nathan

UCL & CEP. Co-founder @centreforcities and @whatworksgrowth. Urbanism, economics, innovation, migration and public policy. My views. I’m at www.maxnathan.com.