London’s remarkable (if partial) COVID-19 resilience in 2020
I had not expected London’s economy to have done nearly as well in 2020 as the most recent output (GDP) figures show (left hand panel of the chart). All the more up-to-date data — for example on furloughs and mobility — have tended to point to a much less robust picture. What could explain this discrepancy?
The answer is the same as it normally is: the aggregate figures hide important detail*. Large parts of the London economy have in fact rebounded remarkably well. This is the case for financial, professional and ICT services (right hand panel of the chart). These sectors have suffered relatively few redundancies and furloughs anywhere, as many of the jobs can be performed well, or even very well, remotely.
What I hadn’t appreciated is quite how significant these sectors are, size-wise, in London (and, indeed, nationally). This is shown by the width of each of the bars in the right hand panel. Even though, for example, transport and storage, hospitality, and arts and entertainment remained depressed by the end of 2020, these sectors account for a relatively small slice of London’s GPD, at 4%, 3% and 2%, respectively (in 2019).
In contrast, finance, professional and ICT services made up 14%, 13% and 12% — nearly 40% in total — of London’s output in 2019. These sectors are material not just locally, but in the national context. The output from London’s finance, professional and ICT services sectors in 2019 was 9% of the national total GDP. This was nearly as much as the entire manufacturing sector UK-wide, which accounted for 10% of the country’s output.
The robustness of London’s GDP in 2020 is particularly interesting given that, as far as we can tell, its labour market has been the worst hit in the whole country. In practice, this means that the inequalities between lower-paid occupations — that cannot be performed remotely and are therefore much more vulnerable to social distancing restrictions — and higher-earning jobs have probably increased even further. This is concerning, given that London’s income inequalities pre-COVID were already some of the worst in Britain (see e.g., #14 here).
* The metrics also matter. Gross value added and GDP are measures of economic output, not people’s incomes or employment. While the figures are usually quite correlated, they can also diverge at times, which makes them interesting. As I have pointed out, the patterns that are revealed by different metrics can tell very different stories. One therefore has to be careful and try to choose the right metric for any particular question one is trying to answer.