Transcript Welsh economic update

The economy in Wales:
position and implications
Jonathan Price
Chief Economist Welsh Government
Latest position and prospects
Recessions compared:
GDP after recession
Employment after recession
(Last quarter before recession = 100)
(Last quarter before recession = 100)
Great Depression
1970s
110
1980s
106
1990s
Current
102
102
108
104
103
102
98
97
98
96
94
94
90
92
1
4
7
10
13
16
Number of quarters after output peak
19
100
99
100
95
95
16
13
10
7
4
1
Number of quarters after output peak
Source: ONS
Source: ONS
1970s
1980s
1990s
Current
19
Latest labour market position (changes):
Labour Market - Annual Change
Jul 2012 to Sep 2012
Claimant count - Oct 2012
Employment Rate
(change in levels)
Unemployment Rate
(change in levels)
Inactivity Rate
(change in levels)
Claimant Count Rate
(change in levels)
Wales
1.3
34,000
-1.1
-14,000
-0.6
-12,000
0.2
2,200
UK
1.0
513,000
-0.4
-110,000
-0.7
-285,000
0.0
-10,900
Latest labour market position (levels):
Labour Market - Latest
Jul 2012 to Sep 2012
Claimant count - Oct 2012
Employment Rate
(levels)
Unemployment Rate
(levels)
Inactivity Rate
(levels)
Claimant Count Rate
(levels)
Wales
69.0
1,358,000
8.2
121,000
24.7
467,000
5.6
80,700
UK
71.2
29,576,000
7.8
2,514,000
22.6
9,073,000
4.8
1,582,200
Longer-run labour market position:
Employment rate
The historic gap in employment rates between Wales and the UK has narrowed
since 2002.
76.0
74.0
72.0
70.0
68.0
Wales
Northern England
Scotland
UK
66.0
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
19
95
64.0
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
Germany
Ireland
Greece
Spain
France
Italy
Portugal
Euro area
Denmark
Sweden
UK
EU
World
Real GDP
2011
2012
2013
3.0
1.4
-7.1
0.4
1.7
0.4
-1.7
1.4
0.8
3.9
0.9
1.5
3.8
0.8
0.4
-6.0
-1.4
0.2
-2.3
-3.0
-0.4
0.6
1.1
-0.3
-0.3
3.1
0.8
1.1
-4.2
-1.4
0.4
-0.5
-1.0
0.1
0.6
1.9
0.9
0.4
3.3
Unemployment
2014
2011
2012
2.0
2.2
0.6
0.8
1.2
0.8
0.8
1.4
1.3
2.5
2.0
1.6
3.9
5.9
14.4
17.7
21.7
9.6
8.1
12.9
10.3
7.6
7.5
8.0
9.7
5.5
14.8
23.6
25.1
10.2
10.6
15.5
11.3
7.7
7.5
7.9
10.5
Source: European Commission – Economic Forecast Autumn 2012
….and additional risks from USA “fiscal cliff”.
2013
2014
5.6
14.7
24.0
26.6
10.7
11.5
16.4
11.8
7.7
7.4
8.0
10.9
5.5
14.2
22.2
26.1
10.7
11.8
15.9
11.7
7.6
6.9
7.8
10.7
Medium to longer term
performance in UK context
Welsh relative economic performance: a summary
Welsh Economic Performance: Rank amongst UK countries/regions - latest data
Measure Rank (/12)
Below Wales
Date
None
Gross Value Added per Capita
12
2010
Gross Disposable Household
Yorkshire & the Humber
10
2009
Income per Capita
North East
North East
Primary Income per Capita
11
2009
London Average over 12
Northern Ireland months to Sep
Employment Rate
9
North East
2012
Full-Time Employee Earnings
12
None
2012
(median)
North East
North West
Yorkshire and the Humber 2008/9-2010/11
Poverty (all ages)
7
West Midlands
London
Wealth per Household (mean)1
1
Excludes Northern Ireland
5
East Midlands
Yorkshire & the Humber
North West
West Midlands
Scotland
North East
2008/10
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
90
80
Per cent
70
60
50
40
30
2001
2002
No quals
2003
2004 (r) 2005 (r) 2006 (r) 2007 (r) 2008 (r) 2009 (r)
Below Level 2
Level 2
Level 3
(a) Working age adults are defined as males aged 18-64 and females aged 18-59
(r) Data for this year have has revised
2003 - 2010
2010
Level 4 and above
Source: Annual Population Suvery
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
90
80
70
60
50
40
30
20
10
0
NQF4Plus
Heads of the Valleys
NQFOther
Rest of the Valleys
None
South East Wales exc. Valleys
All
Rest of Wales
Wales
London
UK
Welsh economic performance in UK context partly
reflects qualifications mix:
Qualifications of working age population (2011)
80%
74% 72%
75%
70%
57%
60%
53%
51%
England
Wales
Scotland
50%
38%
40%
34%
31%
30%
20%
NQF Level 2+
Source: Welsh Government
NQF Level 3+
NQF Level 4+
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
80
75
70
60
50
Poverty (after housing costs)
Low income and material deprivation
60
56
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.
40
33
29
30
20
12
7
10
4
1
2
0
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 parttime work
Note also impact of employment on well-being……
Both not in work
Source: DWP
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
Average earnings
ages 30-34
-10%
Workless spells
ages 26-29
+10%
Source: Gregg, University of Bath
Life satisfaction
age 34
-18%
Self reported
health age 34
-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
Transport
links &
gateways
City-region
transport
Housing
supply
Early years
Planning
Impact on jobs and growth
Urban
environment
Regulation
City regions other policies
HE
Research
Other education
- non-capital
Climate
adaptation
Priorities for maintaining Welsh economic performance
ICT
connectivity
ICT
Enterprise
Energy
costs
Proximity
/ links to
London &
Heathrow
Flexible labour markets
Landscape natural
Rule of law /
stability
English
language
Capital spend on social
infrastructure
Yellow - short term (<3 years) & long-term impact on
jobs & growth.
Orange - long term impact on jobs & growth
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
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 selfemployed)
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.