Author: Mark Pont, Welsh Government

What have we learnt from the data in the last year?

Many trends shown by economic indicators change only slowly over time; apparent short term changes are often temporary or reflect the volatility of data for Wales.

In the last year overall labour market performance in Wales has continued to be strong, with gaps in employment and inactivity rates between Wales and the UK remaining low in historical terms, and well below the gaps that were observed prior to devolution. In common with the wider UK economy, however, wages growth has remained weak in comparison with the longer term trend.

Revisions to previous data mean that the trend in household income in Wales, relative to the UK as a whole, has been slightly downward in recent years. The latest figures show that average disposable income per person in Wales is around 80 per cent of the overall UK value.

The gender pay gap in Wales has continued to narrow and has done so more quickly than for the UK as a whole. The gap is now at the lowest level on record in Wales.

Gross Value Added (GVA) per head, which in part reflects productivity, remains lower in Wales than in the other eleven UK countries and English regions. This is despite seeing the fourth largest increase in GVA per head between 1999 and 2016, and the second largest increase in the UK between 2015 and 2016.

Latest figures show a continued increase in the proportion of young people that are in education, employment or training.

Adult qualification levels continued to increase. For school pupils, new data are not comparable with previous years which had seen a steady increase in performance at the end of compulsory schooling.

Relative poverty rates have changed little in recent years, but are lower than in the 1990s and 2000s.

The economy is complex and continuously changing. In order to understand what is happening it is necessary to look at a number of indicators and to focus more on trends than on short term changes, which are often temporary.

What happens to the economy in Wales depends in part on what happens to the economy across the rest of UK and the wider world, especially over the short term. However, what we do here in Wales matters a great deal for economic performance and on progress towards a low carbon and environmentally efficient economy over the long term.

Income per head in Wales has been growing a little more slowly than in the UK as a whole over the medium term

The best indicator of peoples’ incomes is the measure of Gross Disposable Household Income (GDHI) per head.

Figures for the latest year of data in 2016 were broadly flat for Wales, and since devolution in 1999 Wales has seen the third smallest percentage increase in income per head out of the 12 UK countries and English regions, up 58.8 per cent before allowing for inflation, compared with a 67.4 per cent increase across the UK as a whole. In the most recent year, 2016, Wales was ranked 10th on this indicator, above Northern Ireland and the North East of England [The UK National Accounts measure of GDHI was changed recently to align with the European Commission’s definition for gross national income. Specifically, non-profit institutions serving households (NPISH), which used to be included in the GDHI measure, are no longer included. This change has been applied to the full back-series. The impact on Wales and most of the other UK countries and regions is to reduce the GDHI estimates compared with previous estimates. Consequently, the figures in this report are not directly comparable with those in the previous Well-being Report for Wales, which was published in September 2017 and included GDHI data up to 2015].. Across both Wales and the UK as a whole, GDHI per head has grown only slowly in real terms (that is, after allowing for inflation) since the recession of 2008.

1.01 Welsh Gross Disposable Household Income per head, 1999 to 2016

Source: Office for National Statistics

The slow growth in incomes in Wales and the UK since the recession reflects an unprecedented slowdown in the growth of productivity – or in other words, in the growth in the value of goods and services produced by each worker. This slowdown has been seen, to varying degrees, across developed countries, and the reasons for it are not clear. However, across the UK, including Wales, economic growth has been slower than in most other developed countries in recent years.

Future prosperity is threatened in Wales, as it is across the whole of the UK, if productivity growth does not recover. Over the longer run, it is only productivity growth that can deliver the higher levels of income, and the increased resources for public services, that people want.

Of course income from employment or from benefits isn’t the only measure of prosperity. Looking more broadly at wealth, for example, Wales does better when compared to many other parts of GB, partly due to higher levels of home ownership.

Wales performs less well on GVA than on other indicators

Gross Value Added (GVA) per head measures the average value of goods and services produced in Wales relative to the number of people resident in Wales. Historically Wales has had lower levels of GVA per head than other parts of the UK. However, Wales saw the fourth largest percentage increase in Gross Value Added per head of the 12 UK countries and English regions between 1999 and 2016, up 68.6 per cent before allowing for inflation, compared with a 69.2 per cent increase in the UK. Wales also saw the second largest increase in the UK between 2015 and 2016.

Nevertheless, Wales remains bottom of the list of UK countries and regions on this indicator, mainly reflecting a comparatively low level of productivity. Wales faces a particular challenge in performing strongly on productivity, as research shows that, when other things are equal, productivity tends to be higher in, and near, big cities. Wales has a relatively small share of its population living in, or close to, big cities. The measure of GVA per head in Wales is also negatively impacted by net out-commuting, even though Welsh residents gain the income earned from the GVA they generate in England. The evidence indicates that out-commuters have higher than average earnings.

International data also show that Wales compares better with other regions in Europe on indicators of income than it does on GVA. However, making such comparisons is complicated by the need to convert indicators into a common currency. Over time, large changes in the relative performance of the UK have resulted from the methods adopted to do this. This has affected all UK countries and regions, including Wales.

Coming up with new ideas and better ways of doing things is one of the most important ways in which productivity can be improved over the long term. Data on innovation show that in 2014-16 the proportion of businesses in Wales engaged in innovation activities (46 per cent) was lower than for the UK as a whole (50 per cent). For Wales and all but one of the other UK countries and regions the proportion fell from 2012-14, because of a decline in innovation activity in small and medium sized businesses. Spending on research and development in Wales remains relatively low compared with many other parts of the UK [These indicators are volatile, so precise figures are not quoted. Latest figures are available at UK Business Enterprise Research and Development].

The Welsh employment rate has continued to increase

Work matters for many aspects of well-being – it is not just a source of income, but also promotes social interaction and both mental and physical health. Looking specifically at the latest year, overall labour market performance in Wales has continued to be strong, with gaps in employment and inactivity rates between Wales and the UK remaining low in historical terms, and well below the gaps that were observed prior to devolution.

Figures show a big improvement in the employment rate in Wales over the period since devolution, with an employment rate of 74.8 per cent for the period May to July 2018, 0.7 percentage points below the UK figure, and similar to a number of English regions in the north and midlands. Over the latter part of the 1990s, the gap with the UK was much larger, and Wales performed markedly worse than most English regions.

1.02 Employment rate for population aged 16 to 64, 1999 to 2018

Source: Labour Force Survey, Office for National Statistics

As across the rest of the UK, employment rates in Wales are lower for women than for men – 70.6 per cent for women and 78.9 per cent for men in July 2018. Economic inactivity rates are higher for women (26.7 per cent) than men (17.6 per cent). Gender differences for employment and inactivity rates are smaller in Wales than they are for the UK as a whole. Estimates of unemployment rates are more volatile, sometimes showing a lower rate for women than men, and sometimes higher; for the whole of the UK they are roughly equal.

For children, the likelihood of being in relative income poverty is strongly linked to the employment status of adults in the household. In Wales 12.6 per cent of children lived in a workless household in 2017, compared with 10.9 per cent of children in the UK. In Wales there was a decrease since 2016 (13.9 per cent), and a significant fall from a peak of 20.0 per cent in 2009. 27.2 per cent of children in Wales live in a household where at least one (but not all) adult works, and 60.3 per cent live in a household with all adults in work.

1.03 Percentage of children living in workless households, 2004 to 2017

Source: Annual Population Survey, Office for National Statistics

The national indicator of the quality of employment is the percentage of people in employment who are on permanent contracts (or on temporary contracts and not seeking permanent employment) and who earn more than two thirds of the UK median wage.

The available data for the last three years show a fluctuating picture, and we do not have a long-enough series for this new indicator to discern a clear trend. At the end of 2017 63.5 per cent of people in work in Wales are in work that meets that definition. For women the proportion was significantly lower (51.8 per cent) than for men (75.2 per cent).

Wales is ranked 7th out of the 12 UK countries and regions on the latest figures for quality of full-time employment.

At the same time, other data indicates that over the long run, the share of employment in the top three occupational classes – ‘Managers, directors and senior officials’, ’Professional’ and ‘Associate professional and technical’ occupations - in Wales has grown strongly, although the share of employment in these top occupational classes remains lower in Wales than in many other parts of the UK.

There have been recent increases in young people in education, employment or training both amongst 16-18 year olds and 19-24 year olds. For 16-18 year olds this percentage fluctuated at just under 90 per cent for many years but in general the figures have been increasing since the recession, and in 2017 90.5 per cent of 16-18 year olds were in education, employment or training. Similarly for 19-24 year olds this figure has increased since the recession and now stands at 84 per cent, around 6 percentage points higher than in 2012.

1.04 Percentage of 16-18 year-olds in education, employment or training, 2004 to 2017

Source: Welsh Government

Skills and health are very important for people’s chances of having a job and for their income levels

Skill and qualification levels are the biggest single influence on people’s chances of being in employment and on their incomes. The skill and qualification level of the population in an area is also the single most important factor in the economic success of that area.

It is notable that across Wales there is only limited variation in employment rates for people with similar qualification levels.

The qualification profile of the Welsh population has been improving over time. For example the proportion of the working age population qualified to NQF4 or above has increased from 28 per cent in 2008 to 37 per cent in 2017. There had been further incremental increases in 2017. The proportion of the Welsh working age population qualified to this level is higher than in all English regions except London, the South East and the South West. The Welsh figure is lower than that for Scotland, but higher than for Northern Ireland.

1.05 Percentage of the Welsh working-age population (aged 18 to 64) who have a level 4 qualification or above, 2008 to 2016

Source: Annual Population Survey, Office for National Statistics

Attainment in primary and secondary school has risen in recent years, although in international assessments Wales continues to lag behind the rest of the UK

International research indicates that addressing low and very low skills is even more important than increasing high skill levels. Research suggests that, in common with the rest of the UK, Wales continues to compare less well with other countries in this respect.

Results at the end of Key Stage 4 (the end of compulsory schooling) have been improving up to 2016, with the percentage of pupils achieving 5 GCSE grades A*-C including Mathematics and English / Welsh rising from just over 4 out of 10 pupils in 2007 to 6 out of 10 pupils in 2016. There have recently been a number of changes to the way performance is measured which means that consistent data is not available in 2017.

However the international comparisons made under the OECD’s PISA assessments suggest that in terms of reading, maths and science Welsh 15 year olds continue to lag behind the rest of the UK. Internationally Wales performs below the average of OECD nations.

Results have also been improving at the other key stages of education in schools over the last decade. At Key Stage 2 (end of primary schooling), the percentage of pupils achieving the expected level in each of the core subjects (Mathematics, Science and either English or Welsh) has increased over the last decade from 75 per cent to 90 per cent.

There is a clear link between deprivation and attainment levels at school. While achievement is consistently improving across all groups of pupils, those who are eligible for free school meals have poorer outcomes at every key stage. The gap increases as pupils get older.

At Key Stage 4 the gap between free school meal pupils and others has narrowed in recent years, although there was a slight increase in 2017 (to a gap of 32.3 percentage points) relative to 2016. At March 2017 the percentage of children receiving care and support achieving the Level 2 inclusive measure at Key Stage 4 is less than a quarter of the percentage for all pupils (12 per cent compared to 55 per cent).

New data are available on children’s stages of development on entry into primary school

Children in Wales are assessed through the Foundation Phase Profile, during their first 6 weeks following entry into primary school (reception class). This is used to determine the stage of development and interests of the child according to the Foundation Phase Profile and framework.

The data reflect the wide range of developmental maturity that we expect at this age, which is well within the normal range for children at entry to school, especially with the age variability at the point of school entry.

Around 6 in 10 pupils aged 4 are at a stage of development in mathematics and language, literacy and communication in English that would be consistent with, or greater than, their age according to the framework, with around 9 in 10 pupils within one stage of the development consistent with their age.

There is a different distribution for language, literacy and communication in Welsh, with around 1 in 3 pupils at a stage of development that is consistent with or greater than their age. This can be explained by the number of pupils from non-Welsh speaking households whose parents choose to enrol them at a Welsh medium school. To put this into context, by the end of the Foundation Phase around 90 per cent of pupils achieve the expected outcome in this area of learning.

There is a link between work and good health

In general over the medium-term there have been improvements in the number of expected years of healthy life, avoidable mortality and some healthy lifestyle characteristics (e.g reduced smoking and drinking) in recent years. The evidence shows that people’s health is very important, not only for their chances of being in employment but also for the progress they make once in employment. Good physical and mental health both matter a lot in the labour market, and therefore have important indirect effects on peoples’ well-being, alongside their more direct effects.

However the gap in the employment rate for those aged 16 and over between those with a long term health condition and those who do not have one persists, and was 15.9 percentage points in 2017.

Having a job reduces the chances of being poor, but in-work poverty is increasing

Employment is also associated with a lower risk of deep and persistent poverty. In-work poverty rates have risen in Wales and across the UK (and poverty in households where at least one person is doing some work now accounts for well over half of all working age poverty). However, research for the UK as a whole suggests that poverty rates are much lower for people who live in households where all adults are employees who work full-time. It also suggests that deep and persistent poverty (which is more damaging to the well-being of current and future generations than less severe poverty) is much less common amongst working households.

Overall, relative poverty rates in Wales have changed little over the last few years (as is the case for the UK as a whole). Over the longer term there has been a large reduction in the rate of poverty for pensioners (again, this is similar to the UK as a whole), however in recent years this has begun to increase. As a result, the poverty rate is now much lower for pensioners than other age groups.

1.06 Percentage of all people, children, pensioners and working-age adults living in relative income poverty in Wales, 1994 to 2017

Source: Households Below Average Income, Office for National Statistics

However, poverty can be considered in a wider sense than relative income. Latest figures are similar to previous years, with 16 per cent of adults in Wales materially deprived (that is, not being able to afford basic things like keeping the house warm, making regular savings, or having a holiday once a year). 7 per cent of pensioners were materially deprived and 7 per cent of parents have materially deprived children. The 2016-17 National Survey for Wales showed (when controlling for a wide range of other factors) a wide range of factors associated with material deprivation including tenure, life satisfaction, having access to a car and the working status of the household.

Children are more likely to be in poverty than the population as a whole

Children are more likely to be living in poverty than people as a whole. This is possibly because adults with children are more likely to be out of work or in low paid work due to childcare responsibilities. Previous evidence from the 2014-15 National Survey suggested that even when parents are materially deprived, they appeared to try to protect their children from the experience of child-specific material deprivation.

Low income will be the key factor in explaining levels of child material deprivation. In addition, the 2016-17 National Survey found the characteristics associated with child material deprivation included housing tenure (if parents were in social housing they were more likely to have children who were materially deprived); parental life satisfaction and mental well-being.

The gender pay gap has narrowed

The most recent data for Wales show the lowest gap in pay between genders since the survey began in 1997. The pay gap based on median full-time hourly earnings stood at 6.3 per cent in 2017, down from 7.9 per cent in 2016. Of the 11 UK countries and regions where men earn more than women, Wales has the smallest pay gap, while in Northern Ireland women earn more than men on average, resulting in a “negative” gender pay gap. For part-time employees in Wales, women are paid 7.0 per cent more on average than men, the third largest negative pay gap behind London and Northern Ireland.

These gaps do not take account of factors such as education levels and experience which vary across the genders and which will affect earning levels.

The interaction between economic growth and the goal of a low-carbon, resource efficient economy is complex and poses challenges, but there are also positive signs

Over time, reduced car use, stable commuting times and increased use of low carbon vehicles will collectively contribute to a reduction in emissions.

Although the recovery from recession has been slow and halting, the long-run trend to increased transport use in Wales has resumed, affecting all modes except buses (where use has decreased). As in most other parts of the UK outside London, private road transport remains very much the dominant mode and accounts for the overwhelming majority of commuting journeys in Wales. In 2016, 80 per cent of commuters in Wales used a car as their usual method of commuting, a small decrease since a peak of 84 per cent in 2013. The proportions of people walking or cycling (10-12 per cent), traveling by rail (2 per cent) and using buses (4 per cent) have remained stable over the past 15 years.

Similarly, there is no discernable trend in average commuting times in Wales. The average commuting time has been steady at around 21-23 minutes since 2005, with little change for the various modes of travel.

UK data indicate that low-carbon vehicle use is growing strongly, albeit from a low base. Despite an increase in 2016 (largely driven by a recovery in natural gas power generation following numerous outages to implement efficiency upgrades in 2015), emissions of greenhouse gases have fallen by almost 14 per cent between the 1990 base year and 2016. The reduction in greenhouse gas emissions over the longer term is mainly due to efficiencies in energy generation and business sector heating; natural gas replacing coal; chemical industry abatement and variations in manufacturing output (e.g. in iron and steel, bulk chemical production).