Wales is facing significant challenges in its labour market, with economic inactivity rates surpassing those of the rest of the UK. As of June 2024, many working-age individuals in Wales were classified as economically inactive, a notable increase from previous periods and significantly higher than the UK average.
The latest Welsh Government labour report explores the underlying reasons for this trend and the potential implications for the Welsh economy.
The Rise of Economic Inactivity
Economic inactivity includes individuals who are neither employed nor actively seeking work, such as those who are long-term sick, students, homemakers, and early retirees.
In Wales, long-term sickness is the leading cause of economic inactivity, a problem worsened by the COVID-19 pandemic, which increased health and mental health issues.
Additionally, Wales’ older population, with a higher prevalence of chronic conditions, further contributes to the region’s elevated rates of economic inactivity.
Declining Employment Rates
The employment rate in Wales has also experienced a decline, dropping to 68.9% in the second quarter of 2024.
This reduction can be attributed to several factors, including the economic impact of the pandemic, Brexit-related uncertainties, and the structural challenges within the Welsh economy.
Wales has historically relied on industries such as manufacturing and public services, which have been under significant pressure due to globalisation, automation, and austerity measures.
As these sectors struggle, job opportunities have diminished, leading to a decrease in the overall employment rate.
Additionally, payroll reporting has highlighted these trends, showing how shifts in industry employment are directly impacting the workforce in Wales.
Youth Unemployment and Economic Inactivity
Youth unemployment continues to be a persistent issue in Wales. By July 2024, the claimant count for unemployment-related benefits, including those affecting younger workers, had risen by 12.7% compared to the previous year, reflecting ongoing challenges in the labour market.
While youth unemployment rates have fluctuated, the challenges young people face in securing stable employment remain significant, contributing to long-term economic inactivity for some.
Government Response and Challenges
The Welsh Government has acknowledged these challenges and implemented initiatives to improve skills, support those with long-term health conditions, and boost economic activity.
Employability programmes have been introduced to help people adapt to the changing job market. However, the effectiveness of these efforts remains uncertain, as structural issues in the Welsh economy continue to present significant obstacles.
Political disagreements complicate the situation further. While the Welsh Government emphasises social support and public investment, opposition parties push for more ambitious economic policies, including increased investment in education and skills.
Conclusion
The rise in economic inactivity and unemployment in Wales is a complex issue driven by health-related challenges, demographic factors, and structural economic changes.
Addressing these issues will require a coordinated effort between the Welsh Government, local authorities, and businesses to create a more resilient and dynamic labour market.
As the situation evolves, it will be crucial for policymakers to adapt their strategies to effectively reduce economic inactivity and improve employment rates in Wales.
