the economy in wales: position and implications jonathan price chief economist welsh government
TRANSCRIPT
The economy in Wales: position and implications
Jonathan PriceChief Economist Welsh Government
Latest position and prospects
Employment after recession (Last quarter before recession = 100)
99
9595
100
92
94
96
98
100
102
1 4 7 10 13 16 19
1970s 1980s
1990s Current
Source: ONS
Number of quarters after output peak
GDP after recession (Last quarter before recession = 100)
103
104
102
108
97
90
94
98
102
106
110
1 4 7 10 13 16 19
Great Depression
1970s
1980s
1990s
Current
Source: ONS
Number of quarters after output peak
Recessions compared:
Latest labour market position (changes):
Labour Market - Annual ChangeJul 2012 to Sep 2012
Claimant count - Oct 2012
Wales UKEmployment Rate 1.3 1.0(change in levels) 34,000 513,000
Unemployment Rate -1.1 -0.4(change in levels) -14,000 -110,000
Inactivity Rate -0.6 -0.7(change in levels) -12,000 -285,000
Claimant Count Rate 0.2 0.0(change in levels) 2,200 -10,900
Latest labour market position (levels):
Labour Market - LatestJul 2012 to Sep 2012
Claimant count - Oct 2012
Wales UKEmployment Rate 69.0 71.2
(levels) 1,358,000 29,576,000Unemployment Rate 8.2 7.8
(levels) 121,000 2,514,000Inactivity Rate 24.7 22.6
(levels) 467,000 9,073,000Claimant Count Rate 5.6 4.8
(levels) 80,700 1,582,200
Longer-run labour market position:
Employment rate
64.0
66.0
68.0
70.0
72.0
74.0
76.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
WalesNorthern EnglandScotlandUK
The historic gap in employment rates between Wales and the UK has narrowed since 2002.
Labour market trends (1)
– Wales is maintaining an employment rate well above its historical average, with the level up just under 150,000 since the start of the Assembly (146,000 in latest data);
– Perhaps up to one-third of this is accounted for by net in-migration;
– Employment in Wales has increased by around 12% since devolution, compared to around 9% increase for the UK;
– Since devolution the economic inactivity rate in Wales has fallen by 3.4 percentage points, compared to a fall of 0.9 percentage points for the UK as a whole over the same period.
Labour market trends (2)
– Since 1999 employment in the private sector in Wales has increased by 96,000, whilst the public sector has increased 12,000 (last full year)
– Between 2001 and the year to June 2012 employment in the top three occupations has increased by 162,600, which is more that the overall increase in employment.
– The large majority of the rise in employment has been amongst the over 50s.
…..BUT unemployment / inactivity is currently much too high – and prospects for the next few years are not good.
Projections of potential output (update due late November will probably show further deterioration):
Risk from Eurozone: Latest forecast
Real GDP Unemployment2011 2012 2013 2014 2011 2012 2013 2014
Germany 3.0 0.8 0.8 2.0 5.9 5.5 5.6 5.5Ireland 1.4 0.4 1.1 2.2 14.4 14.8 14.7 14.2Greece -7.1 -6.0 -4.2 0.6 17.7 23.6 24.0 22.2Spain 0.4 -1.4 -1.4 0.8 21.7 25.1 26.6 26.1France 1.7 0.2 0.4 1.2 9.6 10.2 10.7 10.7Italy 0.4 -2.3 -0.5 0.8 8.1 10.6 11.5 11.8Portugal -1.7 -3.0 -1.0 0.8 12.9 15.5 16.4 15.9Euro area 1.4 -0.4 0.1 1.4 10.3 11.3 11.8 11.7Denmark 0.8 0.6 0.6 1.3 7.6 7.7 7.7 7.6Sweden 3.9 1.1 1.9 2.5 7.5 7.5 7.4 6.9UK 0.9 -0.3 0.9 2.0 8.0 7.9 8.0 7.8EU 1.5 -0.3 0.4 1.6 9.7 10.5 10.9 10.7World 3.8 3.1 3.3 3.9
Source: European Commission – Economic Forecast Autumn 2012
….and additional risks from USA “fiscal cliff”.
Medium to longer term performance in UK context
Welsh relative economic performance: a summaryWelsh Economic Performance: Rank amongst UK countries/regions - latest data
Measure Rank (/12) Below Wales DateGross Value Added per Capita 12 None 2010
Gross Disposable Household Income per Capita
10 Yorkshire & the HumberNorth East
2009
Primary Income per Capita 11 North East 2009
Employment Rate 9London
Northern IrelandNorth East
Average over 12 months to Sep
2012Full-Time Employee Earnings
(median)12 None 2012
Poverty (all ages) 7
North EastNorth West
Yorkshire and the HumberWest Midlands
London
2008/9-2010/11
Wealth per Household (mean)1 5
East MidlandsYorkshire & the Humber
North WestWest Midlands
ScotlandNorth East
2008/10
1Excludes Northern Ireland
What makes Wales “different”?
• Skills / qualifications (especially at the bottom end)
• Lack of major city / cities (“agglomeration”)
• Demography (more non-working elderly)
Percentage of Working Age Adults in Employment in Wales by Level of Highest Qualification Obtained
30
40
50
60
70
80
90
2001 2002 2003 2004 (r) 2005 (r) 2006 (r) 2007 (r) 2008 (r) 2009 (r) 2010
Per
cen
t
No quals Below Level 2 Level 2 Level 3 Level 4 and above
(a) Working age adults are defined as males aged 18-64 and females aged 18-59(r) Data for this year have has revised Source: Annual Population Suvery 2003 - 2010
Individual and family characteristics are more important for people’s outcomes than geography – eg employment rates link more strongly to qualification levels than to area:
Employment Rate by Level of Highest Qualification, 2011
0
10
20
30
40
50
60
70
80
90
NQF4Plus NQFOther None All
Heads of the Valleys Rest of the Valleys South East Wales exc. Valleys Rest of Wales Wales London UK
Welsh economic performance in UK context partly reflects qualifications mix:
74%
53%
34%
72%
51%
31%
75%
57%
38%
20%
30%
40%
50%
60%
70%
80%
NQF Level 2+ NQF Level 3+ NQF Level 4+
England
Wales
Scotland
Source: Welsh Government
Qualifications of working age population (2011)
International context reinforces story: Wales (and indeed UK) has a long tail of people with low qualification levels:
Source: OECD March 2012
Human capital (particularly low skills) important everywhere:
Infrastructure important for lagging regions (but less so at the “frontier”):
Incorporating “material deprivation” reflects lasting poverty, and highlights the protective effect of employment (1):
Percentage of children in poverty or having low income and material deprivation. Couple families, UK, three year average to 2010/11
47
29
60
75
1 2
12
33
56
0
10
20
30
40
50
60
70
80
Both in full-time work One in full-time work,one in part-time work
One in full-time work,one not working
One or more in part-time work
Both not in work
Poverty (after housing costs)
Low income and material deprivation
Poverty defined as income less than 60% of median (after housing costs). Low income and material deprivation defined as income less than 70% of median (before housing costs) plus as score of 25 or over on the material deprivation scale.
Source: DWP
Note also impact of employment on well-being……
Impact of unemployment on well-being:
Estimated Effect of Life Event on Life Satisfaction by Year
Clark, A., Diener, E., Georgellis, Y. and Lucas, R. (2008), "Lags and leads in life satisfaction: A test of the baseline hypothesis", Economic Journal
Long run impact of lack of employment on young:
Long term disconnection from employment or education leads to lasting scars on wages, employment and health & well-being.
Effect on outcomes in later life from each year NEET 16-24
Source: Gregg, University of Bath
Average earnings ages 30-34
Workless spells ages 26-29
Life satisfaction age 34
Self reported health age 34
-10% +10% -18% -9%
Importance of cities in regional economies
Wales ranked bottom in UK
LONG RUN: Evidence that allocation of public spending matters for growth (but relationships differ across regions):
Impact of WG influenced spending on jobs and growth (policy impact differs, e.g education policy vital long term)
Priorities for improving Welsh economic performance Priorities for maintaining Welsh economic performance
Areas where jobs and growth not principal focus, but scope for invest to save and exploit synergies
Welsh economic proformance based on UK regional and wider comparisons
Housing supply
Energy costs
City regions - other policies
Rule of law / stability
Transport links & gateways
Imp
ac
t on
job
s a
nd
gro
wth
Other education - non-capital
Regulation
City-regiontransport
Flexible labour markets
English language
Proximity / links to London & Heathrow
HE Research
Capital spend on social infrastructure
Landscape - natural
Yellow - short term (<3 years) & long-term impact on jobs & growth.Orange - long term impact on jobs & growth
Urban environment
ICT connectivityICT
Enterprise
Climate adaptation
Planning
Early years
Key messages
• Slow and halting recovery• Labour market performing better than expected• But unemployment too high, and still big risks ahead• Lack of employment matters – not just for economic
performance….• …but (more importantly) for avoiding poverty, for health,
for general well-being, and for children’s prospects.• In-work poverty exists, but is focused on families which
contain adults working less than full time (or self-employed)
• Long run action to increase employment must include action to improve skills, particularly at the “bottom end”
• There are other things that can be done as well, but no panaceas.