What’s the real impact of a Digital Economy?

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Written by Robin Knowles, Founder and CEO of Digital Leaders

One of the greatest pleasures of my role in Digital Leaders is meeting talented and well informed members of the Digital Leaders Community, as I travel up and down the UK.

Recently I have found myself creating a causal relationship between three themes echoed across the regions. These are: increasing digital skill shortages in the regions outside of London; wage inflation in digital jobs; and rising regional housing prices.

These seem to be linked, but not perhaps as obviously at it might appear, so I wanted to write this blog to see if you can help me shed more light on this.

The connected elements emerging here, are that a number of economies like Manchester and Belfast (to pick two) are experiencing welcomed and encouraged digital economic booms. Possibly in the short term this is as a result of the increasing price differential when compared to London making them more competitive when bidding for work as national and public sector demand goes up. This price differential seems to be linked to lower technology wages in these regions.

However, this regional growth is now being held back by a shortage of digital skills that businesses need to take part in the regional ‘boom’, as too much demand chases too little supply. The natural short-term consequence appears to now be wage inflation. But is this a  simple link and will higher regional wages be sustainable. As new digital businesses start-up in the regional economy, they are hiring existing staff from other companies, creating operational problems to existing businesses.

This is further complicated because the emerging technologies are disruptive to existing tech business models, the most exciting and innovative technologies have the double whammy of not only being the most attractive employers to the local skilled workforce, but the business models they use are themselves pursuing growth fuelled by investor funding that is not Profit & Loss driven, but rather ‘cash-burn’ models requiring lots of talented staff in short time.

Throw in some successful inward investment by the local authority of larger international digital businesses and many companies growing organically in the region find themselves losing staff and are unable to recruit the digital skills they need. Their only short term option is to raise wages dramatically.

The obvious response for these incumbent businesses then might seem to be to put up their prices to cover wage rises, but this will have to be passed onto costs to clients and reduce the differential in price advantage the region has over London and these higher prices might not work for a local business model built around local demand and pricing.

So is a regional digital boom difficult from incumbent digital businesses, but also great news for technologists with increased demand for their services and wage rises. Well maybe not.

Due to the growth in the digital market, some regions are benefiting from an influx of people relocating out of London, attracted to the rising wages and the lifestyle advantages in cities like Manchester and Belfast. A consequence of this, is a hike in housing prices as new arrivals use their greater disposal income. This in turn puts pressure on those with digital skills to locally move jobs themselves to secure the benefits of higher wages to cover these increased costs.

Perhaps , if the above is true and the relationships I describe hearing about are indeed causal then we can conclude that a digital economic boom in a region fails to benefit those incumbent businesses already running locally competitive digital businesses and we will see business failure amongst locally grown tech companies in these regions or their takeover as a consequence.

So be careful what you wish for, because there seem to be unintended consequences from a growing digital economy. Am I right in making a causal link between these separate changes in local regional economies? I look forward to your thoughts and evidence.


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