Britain needs talentopolis

With an increasingly challenging economic landscape ahead, the role of universities in creating hubs of enterprise and employment in their areas is now more important than ever.

In the US, universities are referred to as "anchor institutions" because they are local assets that are unlikely to move in tough and changing economic times. Anchor institutions have a key role to play in local economies: they create jobs, attract businesses and the highly skilled, and form community links.

Such institutions are key stakeholders in their local cities and regions. Local engagement serves their interests as well as those of the wider local economy, for example in terms of an institution's ability to attract high-quality staff and, in an increasingly competitive university environment, students.

Crucially, universities also supply young graduates, the key group driving successful economies. Cities benefit from the clustering of talented individuals: economic growth, innovation and higher wages all follow highly skilled graduates. And both the wages and chances of employment of low-skilled people are increasingly determined by their proximity to highly skilled workers.

In the US, there is a strong link between the concentration of high-calibre universities and patterns of graduate retention. Places such as Boston on the northeast seaboard have become hotspots for young, innovative and enterprising graduates as a result of universities such as Harvard and the Massachusetts Institute of Technology. Such locations have been dubbed "talentopolis".

In contrast, young graduates in the UK are highly mobile. Less is known about graduate retention here, but what evidence we do have has shown that universities have a weaker effect - it is the relative level of employer demand in an area that is key to retention.

Evidence cited in The Work Foundation's new report, Cutting the Apron Strings? The Clustering of Young Graduates and the Role of the Public Sector, shows that public sector expansion since the late 1990s has had a big impact on graduate retention patterns in the UK. Young graduates traditionally moved to London and the South East to find work. But public sector opportunities in the North and Midlands have led to the spreading out of young graduates. In parts of the North and the Midlands, about 50 per cent of young graduates work in the public sector. The figure for central London is closer to 15 per cent.

For cities in the North and Midlands this has been a good opportunity to grow their share of young highly skilled individuals. But it may prove unsustainable: public sector cuts over the next four years have the potential to reverse these trends. In the short term, the cuts are likely to increase graduate unemployment. Youth unemployment has already reached record levels, with almost a million young people now unemployed. The unemployment rate for new graduates has doubled to more than 20 per cent since the onset of the recession. Comparing the rate across all ages, young people's rate of unemployment is now more than double the national average.

As a result, in the longer term there could be a "flight" of young graduates from the public-sector dependent towns and cities in the North and the Midlands to the South East, where there is strong private sector demand.

These apparent trends are stark, but it is less clear what should be done at government level. The coalition has stated that it recognises the pressing importance of youth unemployment and an "unbalanced economy" but critics have been quick to denounce the cutting of the education maintenance allowance and the trebling of tuition fees.

So, in places that have been reliant on public sector employment to retain graduates, other local anchor institutions such as universities must take the lead in attracting and retaining talent. As we move to an increasingly knowledge-intensive economy, highly skilled individuals will be more in demand than ever. A priority will be to integrate highly skilled workers into the local private sector.

Universities have a key role to play through traditional career services but also through education. This means a greater focus on enterprise and providing young people with the skill set to participate in an increasingly innovative economy. It also means a stronger emphasis on links with local businesses.

Failure to address this problem will have long-term consequences for those towns and cities that were struggling before the recession. Without action now, the cuts have the potential to exacerbate future geographical disparities and generational divides.

Jonathan Wright is a researcher on the Ideopolis programme at The Work Foundation and author of its latest report, Cutting the Apron Strings? The Clustering of Young Graduates and the Role of the Public Sector.