Dynamism and the geography of labour reallocation

This project will investigate how variations in labour reallocation and business dynamism across UK regions are shaped by place-based constraints.   

Why this project is important

Closing gaps between firms and regions requires an economy that is both dynamic and diffusive, enabling labour and capital to move toward their most productive uses. Firm dynamism, reflected in businesses expanding, contracting, entering, and exiting, plays a central role in this process. When these mechanisms function effectively, resources are reallocated toward higher-value activities, supporting productivity growth, wage progression, and rising living standards. Reallocation across firms and sectors has historically been a key driver of UK productivity growth. 

National evidence documents a slowdown in job reallocation and firm adjustment. However, there is limited understanding of how these dynamics vary across local areas or how national policies interact with place-specific constraints. 

What it will involve

The research team will address this gap by examining regional differences in business dynamism, labour reallocation, and firms’ hiring responses to productivity changes. The following questions will be answered:  

1. How does firm dynamism vary across local areas in the UK? 

2. Where are the most productive firms located, and what are the regional implications of policies that encourage labour reallocation toward these firms? 

3. How responsive are firms’ hiring to productivity changes across regions? 

4. Which place-based factors help explain weaker reallocation and adjustment responses in some areas? 

5. What specific policy interventions can local and national policymakers implement to strengthen business dynamism, taking regional disparities into account? 

The mixed methods approach will involve:   

• Quantitative analysis using the Business Structure Database to measure firm productivity, dynamism, and labour reallocation across regions.   

• Econometric analysis to examine firm responses to productivity shocks and identify regional adjustment mechanisms.   

• Compilation of a regional panel dataset linking firm dynamics to place-based factors such as housing affordability, transport connectivity, and migration rates.   

• Qualitative stakeholder engagement through case studies in selected UK cities to contextualize findings and refine policy recommendations.   

How it will make a difference

Findings will be directly shared with local policymakers, economic development bodies, and national government officials. Consultations with key stakeholders during the research will ensure findings are grounded in local contexts.