More than two decades after devolution, Wales continues to face a stubborn productivity gap – one that has remained largely unchanged despite periods of economic growth and rising employment.
It is impossible to say what Wales’ productivity performance would have looked like without devolution. What we can observe, however, is what has happened since then, and the data points to a persistent challenge. Productivity in Wales remains below the UK average, and the extent of that gap has been relatively stable over time. There has been little evidence of the kind of convergence that might suggest Wales is catching up.
When compared with Scotland and Northern Ireland, Wales’ progress has also been weaker. In the years immediately following devolution, there were policy commitments around productivity that sent a strong signal of intent, but those ambitions were highly challenging and, over time, productivity slipped down the policy agenda. It is therefore perhaps not surprising that Wales has remained close to the bottom of the UK’s regional productivity league table.
This does not mean that Wales’s productivity growth has been uniquely poor. Growth has broadly mirrored the UK as a whole, but from a lower base. The UK average itself is heavily influenced by London and the South East, and many regions across the UK sit below it. The difference for Wales is that there is no clear period of strong productivity growth to draw on when considering which policies might be most effective.
A further complication is the way productivity is often conflated with employment. Wales has performed better on employment rates than on productivity. Creating jobs is visible and relatively easy to measure, while productivity is about increasing the value generated by those jobs. It is concerned with job quality, value added and how effectively resources are used, rather than simply the number of people in work.
That distinction matters for policy. Targets around job creation are common, but productivity requires explicit attention if it is to improve. This is partly because productivity is harder for individual firms to measure and understand. Tools that help businesses calculate their own productivity and learn from the experience of other firms can therefore play an important role in shifting behaviour and investment decisions.
Wales’ productivity challenge is also uneven. There is a clear east–west divide, with areas closer to England typically more productive than more peripheral parts of the country. Some of those peripheral areas are among the lowest-productivity places in the UK. Any national strategy must therefore recognise regional variation rather than assume a one-size-fits-all solution.
There are, however, common drivers that matter across Wales. Investment in human capital is central, and Wales has devolved levers through education and health policy that can support productivity over the long term. Business investment in technology and innovation also matters, as does the wider policy environment in which firms operate.
Connectivity is particularly important in a relatively small and dispersed economy. Transport infrastructure that improves commuting times can help spread the benefits associated with agglomeration, while digital infrastructure remains an area where Wales has faced weaknesses but also has significant opportunity.
As Wales approaches the next Senedd term, productivity should not be treated as a short-term initiative. It requires sustained commitment and policy consistency. It also needs to extend beyond the private sector. Productivity in public services matters too, both for economic performance and for the quality of services people rely on.
The next Welsh Government will not be starting from scratch. There is strong willingness across business, the public sector and academia to engage on productivity. What is required is leadership that keeps productivity firmly on the agenda, coordinates that collective effort and focuses on generating more value from the work that people already do.
Professor Melanie Jones talks about this and more in the Unlocking Wales' Productivity Potential podcast episode The Productivity Challenge for the Next Welsh Government. Listen to the podcast here.
