IFS: Wales’s employment rate is falling further behind the rest of the UK, posing a challenge for the next Welsh Government

Wales's employment rate has long been below the average rate for the rest of the UK, says the Institute for Fiscal Studies. Progress was made during the 2000s and early-to-mid 2010s, with stronger employment growth in Wales than in the rest of the UK narrowing the employment rate gap for 16–64 year olds from an average of 5 percentage points in the second half of the 1990s (66% in Wales versus 71% in the rest of the UK) to an average of 2 percentage points (73% versus 75%) in the second half of the 2010s.

But falls in Welsh employment since the COVID-19 pandemic mean the gap has widened again – to around 4 percentage points (71% versus 75%) as of 2025. While well-attested problems with labour market data mean the precise figures must be treated with some caution, the reopening of the employment gap can be seen in a range of data sources.

As well as lower employment, Wales has long had lower earnings than the rest of the UK.

• Wales's median (middle) monthly earnings of £2,401 were 5% below the UK median in 2025. This gap has narrowed very slightly over the last decade, from just over 6% in 2015 (the first year of comparable data).
• The gap for mean earnings – which is affected more by the earnings of high earners than the median – is larger at 16%. This reflects the fact that Wales has relatively few high earners, which in turn is due to both the sectoral composition of the Welsh economy, and Wales's relatively small share of the highest-paid jobs within each sector.
• The median pay gap between Wales and the UK as a whole is nearly twice as large for the private as for the public sector. As a result, Welsh public sector workers earn more than private sector workers of the same sex and age, and with the same education and experience – in contrast to England as a whole.  

A lower employment rate and lower earnings mean material living standards are generally lower in Wales than in the rest of the UK as a whole – median household net incomes are almost 6% lower.  Whilst we lack up-to-date data on low and high incomes, the most recent data we have suggest household net incomes in Wales are lower at every point of the income distribution. But the gap is larger at the top of the distribution than at the bottom – for example, the gap is 4%  at the 10^th percentile and 13% at the 90^th percentile. This results in lower income inequality in Wales than in the rest of the UK. Lower housing costs only partially offset these lower incomes.

Addressing the gaps in labour market performance would not only boost living standards, but also improve the Welsh Government's finances. In particular, it would mean higher devolved income tax revenues, and lower spending on devolved benefits, such as the council tax reduction scheme. This would enable increases to other Welsh Government spending and/or cuts to devolved tax rates.

These are among the key findings of the IFS's fourth Welsh election briefing (Labour market, living standards and poverty trends in Wales), funded by the Nuffield Foundation.

The report looks at patterns and trends in employment, earnings, household income and poverty. It also discusses the Welsh Government's child poverty strategy.

Jed Michael, a Research Economist at the IFS and co-author of the report said:

‘After catching up during the first two decades of the 21^st century, more recent data suggest Wales's employment rate has fallen behind the rest of the UK. When combined with lower earnings, this lower employment rate means both lower average household incomes and a slightly higher poverty rate than the UK as a whole – despite lower housing costs.

The Welsh Government and Senedd have made improving living standards and reducing child poverty key goals enshrined in law as part of the Wellbeing of Future Generations Act. Improving productivity, earnings and employment will be key to meeting these goals – not least because under current devolution arrangements, the Welsh Government has limited control over benefits, which are generally the most direct way to boost the income of low-income households.'

ENDS

Notes to Editor

Labour market, living standards and poverty trends in Wales is an IFS report by Jed Michael and Tom Wernham.

• The report is available to read here (strictly embargoed to 00:01 Wednesday 1 April)
• It will be published here on the IFS website

This report is the fourth in a series of IFS briefings on the Welsh election funded by the Nuffield Foundation. Co-funding from the Economic and Social Research Council (ESRC) through the Centre for the Microeconomic Analysis of Public Policy is also gratefully acknowledged.

The Nuffield Foundation is an independent charitable trust with a mission to advance social well-being. It funds and undertakes rigorous research, encourages innovation and supports the use of sound evidence to inform social and economic policy, and improve people's lives. The Nuffield Foundation is the founder and co-funder of the Nuffield Council on Bioethics, the Ada Lovelace Institute and the Nuffield Family Justice Observatory.  This project has been funded by the Nuffield Foundation, but the views expressed are those of the authors and not necessarily the Foundation. Find out more at: www.nuffieldfoundation.org. Bluesky: @nuffieldfoundation.org, LinkedIn: Nuffield Foundation